Thursday, November 29, 2012

True Religion PEU

Denim maker True Religion accepted bids from private equity underwriters (PEU's).  Potential bidders include Carlyle Group, Apax Partners and Leonard Green & Partners. 

PEU Glam Rock stars include The Carlyle Group's David Rubenstein, who draws adoring crowds at the Kennedy Center and Lincoln Center.  PEU's occupy the fast lane, given private capital is the answer to all of America's ills, healthcare, infrastructure and education. 

PEU is America's true religion, so it's fitting True Religion is going PEU. 

Tuesday, November 27, 2012

PEU Headliners for Dealbook Conference reported:
The New York Times announces its inaugural DealBook conference, “Opportunities for Tomorrow,” which will explore the opportunities and challenges posed by the 2012 election results, including the regulatory landscape, the relationship between economic growth and jobs, and what Congress and the President should do for the economy over the next four years

Lloyd Blankfein, chairman, CEO and president of Goldman Sachs; Jamie Dimon, chairman and CEO of JP Morgan Chase & Company; Indra Nooyi, chairman and CEO of PepsiCo; David Rubenstein, co-CEO and co-founder of The Carlyle Group; Eric Schmidt, chairman of Google; and Stephen A. Schwarzman, co-founder, chairman and CEO of The Blackstone Group. 

Goldman and JP Morgan have private equity divisions and actively resell private equity stakes   Private equity underwriters (PEU's) know tax avoidance and have political connections to reset any tax table to their liking.   

We are bringing together some 400 leaders from the public and private sectors, including investors, government officials, chief executive officers and analysts. Opportunities for tomorrow will be redefined by the election. And by our collective efforts.

Dealbook's headliners drive federal policy to their advantage. 

Monday, November 26, 2012

PEU Moves to Avoid the Taxman

The PEU tax avoidance shell game is on, according to Bloomberg:

Private-equity managers are bracing for higher taxes in 2013 and in the final weeks of this year are refinancing investments, accelerating gains and shifting what they transfer to trusts.

Some are considering whether to accelerate gains on accrued carried interest at current tax rates. One way to do that is by transferring general partner interests to an affiliate in a taxable transaction, Brown said. 

The affiliate is usually set up as an S Corporation or a non-U.S. firm based in a place like the Cayman Islands so it isn’t subject to corporate-level U.S. tax, he said. 

There's more than one strategy to keep PEU's preferred taxation, have it in any new law.  Members of Congress know who provides their re-election funding.

Proposals in Congress have allowed so- called qualified capital, or investments that managers make alongside investors in a deal, to still be taxed at preferential rates.
Red and Blue love PEU.

Update 12-6-12:  PEU's are ready to remake the world in their image.

Sunday, November 25, 2012

Carlyle Group's Latest Taxpayer Subsidy

The Carlyle Group's TurboCombuster Technology received nearly $4.9 million in offers to expand production in Martin County, Florida and provide 200 new jobs.  Carlyle has until 2016 to add the required positions.

Martin County Economic Development Fund grant: $900,000
Governor's Quick Action Closing Fund grant: $3 million
State sales tax exemption for equipment purchases: $420,000
State workforce training grant: $350,000
Florida Power & Light Co.: $200,000 rate reduction

Texans gave Carlyle's Vought Aircraft Industries $35 million for 3,000 new jobs.  Carlyle had six years to meet their stated commitment.

The consolidation plan, as originally designed, would renovate and modernize the Dallas facilities and would close the Nashville and Stuart sites.

Stuart is Stuart, Florida in Martin County.  Carlyle didn't close the Stuart plant and never met its Texas job promises.

With three years to go, Vought CEO Elmer Doty stated new jobs weren't coming.  Vought reclassified the money from operating capital to financing in 2006.

Governor Perry has a whopper of a fish tale, that Vought provided 29,000 jobs, when it actually cut 35.  Texans gave Carlyle $1 million per job lost.  Perry renegotiated the deal before Carlyle sold Vought to Triumph in 2010. 

Let's hope Floridians have a much better and more honest experience with Carlyle.  Texans got ridden hard and put up wet.

Bonus fact:  Palm Beach County and Palm Beach Gardens together approved $272,800 in tax incentives to attract Chromalloy, another Carlyle Group affiliate. The state of Florida approved about $700,000.  Nothing beats a nondebt, nonequity capital injection.

Update 12-1-12:  A Realtor sued for their commission on the TurboCombuster property and incentive package deal.  After Carlyle purchased TurboCombuster, this realtor was shut out, despite years of work.

Update 3-10-13:  Governor Rick Scott will be in Stuart for a ceremony celebrating nearly $5 million in subsidy for Carlyle's TurboCombuster Technology.  Scott's PEU background is with Welsh, Carson, Anderson & Stowe.

Update 7-9-15:  Moody's downgraded TurboCombuster's debt due to weakening cash flows, less than expected operating performance and earnings headwinds.

Update 9-2-15:  Uncle Sam will send Chromalloy $74 million in business via Oklahoma's Tinker Air Force Base. 

Update 9-26-16:  Moody's downgraded TurboCombustor yet again due to tight liquidity and weak credit metrics due to the firm's high leverage, a signature PEU move. 

Update 9-3-22:  Carlyle will sell Chromalloy to Veritas Capital. 

Update 12-7-22:  Carlyle announced it is offloading TurboCombuster dba Paradigm Precision to CDR and Greenbriar.  The deal is expected to close in early 2023.

Saturday, November 24, 2012

Autonomy in PEU Hall of Fame

Autonomy PLC, the firm HP wrote down by $8.8 billion, was inducted into the European Private Equity and Venture Capital Association Hall of Fame in October 2008, roughly one month into the U.S. Financial Crisis. 

The logic for inducting Autonomy was "for being one of the rare European technology companies to grow from a start-up to a $1 billion dollar company in 10 years or less."

Adams Street Partners claimed Autonomy as an affiliate, prior to HP's buyout.  Deloitte audited Autonomy and staunchly defends its record.  Oddly, Autonomy may end up in a different PEU Hall of Fame, from $10 billion to $1 billion in 13 months or less."

Wednesday, November 14, 2012

Distressed Investors Carlyle & MEG Battle in Court

The Carlyle Group's Sapphire Energy charged lawyers with snatching back $17.5 million in escrow money owed to Morris Energy Group LLC from the purchase of eight power plants.   It's the battle of an army of lawyers from competing distressed investors, MEG vs. Carlyle/Riverstone:

MEG focuses on improving the financial performance of distressed generating businesses in the Northeast U.S.
Carlyle/Riverstone's Sapphire is managed by the Topaz Power Group team. Topaz is 50% owned by Carlyle.

Which group will win?   Which will cause the other more distress?

Monday, November 12, 2012

Running One of America's Largest Employers

Bloomberg spoke with Carlyle Group co-founder David Rubenstein.  Reporter Erik Schatzker called Rubenstein one of America's largest employers.  A fact check showed

Founded in 1987 in Washington, DC, Carlyle has grown into one of the world’s largest and most successful investment firms, with more than 1,300 professionals operating in 32 offices in North America, South America, Europe, the Middle East, North Africa, Sub-Saharan Africa, Japan, Asia and Australia.

Who knew a private equity underwriter (PEU) employing 1,300 people across the globe is one of America's largest employers?   Why the distortion?

Rubenstein brings to mind America's former large employers, the Robber Barons.  The History Channel has a series on these titans, many "self made men" like Rubenstein.

Carlyle manages $157 billion in assets, a sum requiring Bloomberg's reporters to kow tow and Capital Hill to extend red carpet treatment.  Just as the Robber Barons knew how to influence regulatory and tax policy to their ends, so do PEU's.  Rubenstein's excitement over tax restructuring is sure to have a number of PEU plums.

PEU Returns to Fall Says Rubenstein

Bloomberg reported:
David Rubenstein, co-chief executive officer of Carlyle Group LP (CG), said returns on private equity will decline from their historic averages as lackluster economic growth forces firms to put more money into deals and hold their investments longer. 

Carlyle, which has produced average returns of about 30 percent over the past 25 years, is targeting gains of about 20 percent when doing deals now, Rubenstein said.
The Carlyle Group's Rubenstein promised 20% returns on infrastructure projects, i.e. lower than historical PEU returns but with less risk.  Will he stick with those projections in light of his overall return downward revision

Another element cited by Rubenstein is the challenge in raising funds for investment.  Fellow PEU KKR will over two new investment funds to retail investors, according to FT:

The growing spread of businesses raises the potential for new conflicts with asset managers and the creation of the internal “Chinese walls” common at investment banks to protect against the inappropriate spread of information or unfair treatment of different investors
Not only can investors buy a KKR mutual fund, they can buy KKR or Carlyle Group common units on the stock exchange.  Carlyle's IPO stated common unit interest would come after private equity investor and partner interests.

With private equity searching out the common investor, the game may be nearing its end.  Founders want to cash in, which means they want to pass the bag.  Will the individual investor, shut out of high returns for three decades, suddenly become the bagholder? 

Update 6-22-14:  PEU's want individuals with defined contribution retirement savings to invest in private equity.  The story says there's lots of interest, but no one wants to go first.

Sunday, November 11, 2012

PEU to Star at Smithsonian Book Festival reported:

The Library of Congress on December 6 and 7 will host the first International Summit of the Book, a gathering of leaders in academia, libraries, culture and technology to debate and discuss the powerful and crucial form of information transmittal: the book.

Speakers for the two-day event include David M. Rubenstein, co-founder and co-chief executive of the Carlyle Group and a major supporter of literacy initiatives at the Library of Congress...

The summit will take place in the Coolidge Auditorium of the Library’s Thomas Jefferson Building.
Carlyle co-founder David Rubenstein made billions buying and selling companies as a private equity underwriter (PEU).  Thomas Jefferson's fortunes grew from the labor of slaves, the buying and selling of people.

Both Jefferson and Rubenstein displayed youthful idealism.  As a young man Thomas Jefferson believed slaves should be free.  Young lawyer Rubenstein worked in President Jimmy Carter's White House as a domestic policy adviser.

Jefferson later embraced the Southern economic system based on slave labor.  The October issue of Smithsonian included "Master of Monticello", which stated this about Jefferson:

It had long been accepted that slaves could be seized for debt, but Jefferson turned this around when he used slaves as collateral for a very large loan taken out in 1796 from a Dutch banking house in order to rebuild Monticello.  He pioneered the monetizing of slaves, just as he pioneered the industrialization and diversification of slavery.

Thomas Jefferson levered slaves, which makes him a PEU forefather.

After leaving the Carter White House Rubenstein took advantage of another oppressed people, Alaskan Natives.

In 1984, a law was passed allowing native corporations in Alaska—that is, Eskimo owned companies created by Congress to manage native lands—to sell their losses to businesses looking for tax write-offs. The Marriott executives, working with David Rubenstein at Shaw Pittman, discovered the Eskimo clause and vigorously bought the losses to offset gains. The adventure has become known in some quarters as the Great Eskimo Tax Scam.

Did Rubenstein's windfall from the "Great Eskimo Tax Scam" provide the kitty used to start The Carlyle Group in the mid 80's?  Carlyle began as a leveraged buyout (LBO) firm.

Early LBO firms mined equity from over-funded pension plans.  LBO's morphed into private equity.  PEU's became ubiquitous in the last decade.  Their founders rose to modern robber barons.

While claiming to be the savior of public pension plans in need of greater return, recent Carlyle deals, RAC and Brintons, ditched the worker pension plan onto the public or another party.

It's fitting PEU Rubenstein will speak in the Thomas Jefferson building at the Smithsonian.  For both men idealism morphed into greed

The timing could be good for Rubenstein to push former Bloomberg reporter Jason Kelley's new book, The New Tycoons, which fawns over PEU's.  I expect this book is as impartial as General David Petraeus' biography, written by his paramour.  It's an odd time when PEU's and Petraeus freely skate from their sins.  Yet, Rubenstein would have one believe "patriotic philanthropy" is the balm that heals all.  I'm not buying the act.

Update 3-10-13:  Yet the Wall Street Journal did.

Update 5-12-14:  Rubenstein will speak at Monticello's July 4th naturalization ceremony.

Update 9-17-17:   General David Petraeus joined PEU KKR in May 2013 and recently was appointed to the board of a KKR affiliate focused on cybersecurity.

Friday, November 9, 2012

PEU Nonprofit Status Unlikely to Change

Businessweek reported:

“It may not mean a direct hit to the bottom line for the firms, but investors will see their tax bills increase.”

That's because private equity underwriters (PEU's) are virtual nonprofits, like your local church or safety net hospital.  Carlyle declared $2.3 billion in income before provision for income taxes, with a paltry $27.8 million income tax provision.  That's a 1.2% income tax rate.

Whether it's income or equity cash-ins, PEU founders get huge tax discounts.  Given how much Red and Blue love PEU, I expect little change in PEU firm's nonprofit status.

Sunday, November 4, 2012

Carlyle Seeks Carpet Subsidies

The Carlyle Group is considering a bid for British carpet maker Victoria, destabilized and marked down due to Board level infighting this past summer.  While Carlyle loves disequilibrium and buying key assets on the cheap, something more may be afoot.

Carlyle took over Brintons', another British carpet maker, by effectively calling their debt.  The Carlyle Group dumped Brintons' pension on the public in the prepackaged bankruptcy process.  

Carlyle wants major government subsidies to update its Brintons' carpet plant in Kidderminster, which happens to be home of Victoria.  Should Carlyle add Victoria might that improve its prospects for a major nondebt, nonequity capital injection, courtesy of taxpayers?  Nobody does government-corporate welfare better than the boys at Carlyle.

As for ethics, consider words of the Brintons' founding family:

The descendants of the founding Brinton family accused Carlyle of breaking a string of promises to gain control.
Fearless greed, it's the PEU way.

TEDx: Rubenstein's Fearless "Patriotic Philanthropy"

WaPo reported on Carlyle Group co-founder David Rubenstein's talk at the Regional TEDx, held in Washington D.C.  

WaPo's piece stated
Carlyle Group co-founder David M. Rubenstein> has coined a new phrase to capture his approach to giving away millions: “patriotic philanthropy.” Speaking at the October 26 TEDx Conference sponsored by The Case Foundation at Sidney Harman Hall, Rubenstein said citizens – rich and middle class alike—should give to arts and cultural causes that are threatened by government deficits running into the trillions. Ergo, patriotic philanthropy. Rubenstein should know. The billionaire private equity figure gave millions last January toward the repair of the Washington Monument, which was damaged in an earthquake last year. He also donated $4.5 million to the National Zoo’s panda program, and loaned a copy of the Magna Carta, worth some $20 million plus, to the National Archives.

Fearless David Rubenstein's TEDx theme can be summarized as this:

Make hay on PEU tax breaks, buy and sell affiliates with large chunks of government business, then donate to causes threatened by government deficits. 
At least that's my take.  Ironically, the Carlyle Group occupied three slots out of fourteen D.C. residents on the Forbes 400 Richest Americans.

David Rubenstein is a modern day robber baron, thus politicians, the business media and attorneys general cater to his every need.

If Rubenstein were truly concerned about people suffering from cuts in government services, he'd have refunded Texas taxpayers $35 million long ago.  The Carlyle Group's Vought Aircraft Industries promised 3,000 new jobs in 2004, never delivered and kept $35 million interest free for six years. 

Florida residents watch out.  Carlyle's Dynamic Precision Group stands to garner $5 million in subsidies for 200 new jobs.   How much patriotic philanthropy will be needed around Stuart due to government-corporate welfare? 

21% of D.C. billionaires founded the Carlyle Group.  Fellow co-founder and billionaire William Conway stated:

The seeds of the firm’s initial success was that they showed their investors that “we understood businesses that do business with the government.” 

Clear?  It's PEU fearlessness. 

Update 3-10-13:  It's WSJ's turn to laud Rubenstein's patriotic philanthropy. 

Update 11-8-23:   The Chinese recalled pandas from zoos around the world.  

"David is not commenting on the panda situation at this time," Rubenstein's spokesperson Christopher Ullman wrote in an email.


Saturday, November 3, 2012

Carlyle Group's LifeCare Nightmare Nearly Over?

Carlyle Group affiliate LifeCare Holdings sits in purgatory, given it defaulted on its debt and loan waivers expired November 1.  What will happen?  Carlyle could:

1.  Sell LifeCare
2.  Declare bankruptcy and turn the company over to lenders, who then could sell the company (like Carlyle did with Oriental Trading, just resold by KKR & company to Warren Buffet's Berkshire Hathaway)..

Once Carlyle loses LifeCare, it will jettison its role in owning the New Orleans hospital that lost 25 patients in the horrific aftermath of Hurricane Katrina.  It may be a relief to bury that PEU nightmare.

Update 11-8-12:  Carlyle extended LifeCare's loan waivers until December 15.

Update 11-15-12:  LifeCare paid Rothschild et al $5.7 million instead of making a $5.5 million payment on its debt.  That started Carlyle's strategic default of LifeCare.   Carlyle's planning for a change in control.  

Thursday, November 1, 2012

Kelley Fawns over New PEU Tycoons

Forbes published a book review of Jason Kelley's "The New Tycoons:  Inside the New Private Equity Industry that Owns Everything."  The review showed Jason's PEU love, which he honed as a former Bloomberg reporter. 

Another ex-Bloomberg reporter had this to say regarding PEU's:

There are very few people out there who will talk and write honestly about private equity. I know from personal experience that the financial press is so eager to break news on "deals" that reporters (who are increasingly compensated on the number of "market moving stories" they write) can't afford to be critical of Carlyle, KKR and Blackstone, and risk losing access to people at those firms.
Jason's book should ensure access for some time to come.

I can remember Bloomberg's private equity reporter - who you featured in a recent blog photo - going on TV to talk about the HCA dividend and calling it a "liquidity event." The reporters are trained by the PE firms' PR people to use language that they find acceptable. Wouldn't want to say they're "cashing out." I've never seen anything like it before.
Even when PEU's confess to their insider connected ways of making billions, Jason provided a free pass.

Carlyle co-founder Bill Conway told Kelly that the seeds of the firm’s initial success was that they showed their investors that “we understood businesses that do business with the government.”
Trained by PEU firms to use acceptable language.  Kelley learned a whole book's worth.