Saturday, June 29, 2013

Carlyle's Choppy IPO Week

The Carlyle Group completed one IPO, at well below the target range, cut another back by two-thirds and cancelled a third due to under-subscription (lack of interest). HD Supply, expected to price at $22-25 per share, went public at $18.  IFR reported:

HD Supply’s deal is the fifth-largest IPO in the US this year. At eight-times net leverage, the company is among the highest-ever leveraged IPOs, compared with 7.5-times and 7.2-times on the recent IPOs of Intelsat and Realogy.
Leverage is the knife that cuts both ways.  Under an easy credit environment it fuels private equity underwriter (PEU) profits.  In a credit crisis it takes down firms.  Credit crises arise when regional markets, major financial institutions or certain types of credit instruments implode. 

The Chinese Shanghai market is under pressure, which may have reduced U.S. investor interest in Carlyle's cancelled IPO.  IFR Asia reported:

Carlyle-backed GDC Technology, a Hong Kong-based maker of digital-cinema servers, postponed its Nasdaq IPO of up to US$80.43m. The deal had been originally set to price on Wednesday.
Carlyle, with more than $176 billion in assets under management across 114 funds and 76 fund of funds vehicles, couldn't inspire investor confidence to subscribe to an $80 million deal.   IFR Asia added:

Carlyle-backed New Century Real Estate Investment Trust has cut the size of its Hong Kong IPO by 66%. It relaunched the deal on Friday, and aims to raise HK$676m (US$87m), versus a fundraising target of up to HK$1.97bn for the original deal.

This was despite offering a 2013 dividend yield of 7.62%–9.14%, achieved through dividend waivers from the controlling shareholders for the first two years.

The deal will be priced at the bottom of the guidance range of HK$3.50–$4.20, according to sources.
Despite these disappointments The Carlyle Group kept their good name, even in the wake of Edward Snowden's trashing Booz Allen Hamilton's reputation along with that of former Carlyle affiliate USIS.  USIS conducted the security investigation on Snowden.

Pensions & Investments noted:

But after 25 years, investors with Carlyle — a legend in the private equity world — remain loyal and unflappable.

How thick is this Carlyle "loyalty"?  CalPERS executives wouldn't say the dumping of their 4% Carlyle Group equity stake was a strategic decision.

The $259.8 billion California Public Employees' Retirement System, Sacramento, sold off 20% of its $1 billion limited partnership interest in Carlyle Partners V LP last year and this month sold its 4% stake in the now-public Carlyle Group. It also has not yet made a commitment to Carlyle's sixth buyout fund, despite being an investor in about 25 Carlyle funds, including four earlier buyout funds. 

Shedding its stake in the Carlyle Group was not a strategic decision, said CalPERS spokesman Joe DeAnda, and does not reflect a “lack of confidence in Carlyle or private equity in general.”

Of course it was a strategic decision.  The curtain remains fully in place.

Friday, June 28, 2013

Another Obama - Carlyle Group Bread Breaking

Fresh from hosting Carlyle Group co-founder David Rubenstein for dinner at the White House, Obama officials will dine with Carlyle executives in Africa.

Obama said that the involvement of emerging powers in Africa was a sign of the continent's economic potential and new vitality and also a warning to the United States that it cannot afford to stay on the sidelines.

Obama's tour, also including Tanzania, is meant to make up for lost time, as the son of a Kenyan who became the first black US president made only one brief stop in sub Saharan Africa, in Ghana, during his first term.

He is bringing with him some of his top economic advisors and CEOs and executives from blue chip American firms to drive new American investment and business links with the continent.

On Saturday, top aide Valerie Jarrett and US Trade Representative Mike Froman will hold a breakfast meeting with executives from groups including Coca Cola, Ford Motor Company, The Development Bank of South Africa, The Carlyle Group, Goldman Sachs International and the African Finance Corporation.

This is the same Valerie Jarrett who as Board Chair fired 30% of employees and eliminated their defined benefit retirement plan.  The African people should watch out.

Update 7-2-13:  After meeting with business leaders, like Carlyle's David Rubenstein, the White House postponed PPACA's employer mandate until 2015,  The aforementioned Valerie Jarrett cast the decision:
"as part of an effort to simplify data reporting requirements.  She said since enforcing the coverage mandate is dependent on businesses reporting about their workers’ access to insurance, the administration decided to postpone the reporting requirement, and with it, the mandate to provide coverage.  “We have and will continue to make changes as needed,” Jarrett wrote in a White House blog post. “In our ongoing discussions with businesses we have heard that you need the time to get this right. We are listening.”
Here's to you Mr. Rubenstein.  Another year of blight should enable private equity underwriters to scoop up more nonprofit, community hospitals on the cheap.

Thursday, June 27, 2013

Carlyle's BankUnited Subsidy Totals $5.9 Billion

The Carlyle Group and its PEU brethren received $5.9 billion in subsidy for taking over BankUnited.  When the FDIC struck the deal it gave PEU sponsored BankUnited $2.2 billion in cash, instantly making it one of the best capitalized banks in America.  The FDIC sent another $3.7 billion to cushion losses, bringing the total subsidy to nearly $6 billion.  That's almost half of PEU BankUnited's current $12.7 billion value. 

Also, Carlyle Group co-founder David Rubenstein spent $630,000 on a newsprint version of the Declaration of Independence.  It's called patriotic philanthropy.  Make billions from Uncle Sam, use the proceeds to pick up rare historical items, loan them for public display while they remain in Rubenstein's name and grow in value. 

Saturday, June 22, 2013

PEU Firms Fall Behind

Independent research cast doubts on previous claim by private equity underwriters that they are masters at improving productivity:    

Firms taken over by a private-equity buy-out see their performance fall even further behind their industry rivals, according to a new study.

Private equity raises money to buy a company with the primary objective of improving the fortunes of an under-performing firm to ultimately seek a re-flotation on the stock exchange or to sell it on at a profit.

But when researchers at Warwick Business School, Cardiff University and Loughborough University looked at all of the publicly-listed firms that had gone through a private-equity buy-out in the UK between 1997 and 2006 that was far from what they found.

During that decade 105 publicly-listed UK companies were bought-out by private equity investors and when their performance was compared against firms of a similar size in the same industry they found the productivity of the acquired firms lagged even further behind. Instead of improving following the shedding of jobs and assets the firms’ performance gap against the control group – as measured by turnover per employee - widened.

Professor Wood, who is Professor of International Business at Warwick Business School, said: “What we found was the promised productivity gains of a takeover rarely materialised. Rather, there was evidence of private-equity buy-outs reducing the number of workers and squeezing wages, without making the firm more efficient.

I've written about the race to the lowest common denominator on worker pay and benefits.  The study noted this PEU drive:

“Why do firms that are "taken over" perform worse? We believe that it is because outsiders find it more difficult to cost the worth of a firm’s human assets, and their combined knowledge and capabilities. Hence, they are more likely to lay off staff and less aware of the consequences this may have for future performance.

I expect the PECKER Council to respond vigorously.  PECKER stands for Private Equity Capital Knowledge Executed Responsibly.  

Friday, June 21, 2013

Obama Dinner Host for Carlyle Cofounder

President Obama hosted an intimate dinner for Carlyle Group co-founder David Rubenstein at the White House.  Rubenstein was a frequent visitor to the White House during the first two years of Obama's Presidency.  Forbes reported:

By midday he’s back in the capital, lunching at the White House with an old friend, National Security Advisor Thomas Donilon, before returning to the office to prepare with some of his dealmakers for Carlyle’s upcoming investors conference.
The Globe and Mail added Tony Blair attended an Obama White House dinner.  Rubenstein bought high political access for Carlyle since its founding in 1987.  Carlyle profited from its governmental associations and continues to do so today.  Blair facilitates political access, work important to Carlyle and company:

He (Blair) employs some 200 staff and is worth anywhere between CAN $95 and $125-million–-not bad for an old leftie. Clients include J.P. Morgan, the American banking giant that pays him $4-million a year; a consortium of South Korean investors and oil companies; Zurich Insurance; governments in Columbia, Brazil, Kazakhstan, Mongolia, China (the China Investment Corporation), Abu Dhabi, Kuwait, and various others.

Both Rubenstein and Blair legitimized Libyan leader Muammar Gadhafi, yet neither paid a price when the West decided Gadhafi had to fall.  Instead the media sacked Michael Porter. 

President Obama pretends to be against private equity underwriters (PEU).  If he's like most ex-politicians, someday Obama will be one. 

Thursday, June 20, 2013

Carlyle Group Affiliates & Edward Snowden

The Carlyle Group's purchase of Booz Allen Hamilton infected the firm's culture, according to one ex-employee.  Edward Snowden, a Booz Allen Hamilton employee, revealed the extent of government secret spying on Americans.  This revelation angered America's greed and power class.  A rash of retaliatory measures are underway to get at Snowden..

One group garnering blame is USIS, the security contractor that performed Snowden's background check.  USIS is a former Carlyle Group affiliate.  Carlyle selected Washington, D.C. for its PEU headquarters based on access to power.

How many more Carlyle affiliates touched the Snowden leak?  Carlyle owned companies in the data center business.  Did any serve as NSA contractors? 

Update 9-28-13:  USIS is under scrutiny for seemingly flawed background checks.

Friday, June 14, 2013

Carlyle's Low Interest, Easy Money Redux

The WSJ asked Carlyle co-founder David Rubenstein to compare now to just before the financial crisis, both times of easy money and low interest rates:

Last time before the crisis arose officially, I think people recognized that we were in a bubble.  It was widely recognized.  People did think that subprime loans were real ready for a cutback.

The Carlyle Group recognized subprime loans were in a bubble?  Was that before or after the collapse of Carlyle Capital Corporation, a $22 billion mortgage backed securities fund?  Low interest rates and easy money fueled CCC, which collapsed due to high leverage.  FT reported:

A November 2006 offer memo described CCC’s plans for “superior risk- adjusted returns from investments in a diversified portfolio of fixed income investments” that “expects to pay investors 90 per cent of its net income, have net returns of 14.1 per cent and a projected net dividend yield of 12.5 per cent” by the fourth quarter of 2007.

The document added that about 86 per cent of the assets would be in triple-A rated mortgage assets. By the second quarter of 2007, CCC planned to have $9.2bn in mortgage assets – of which 94 per cent would be triple-A rated – and less than $1bn in bank loans and other corporate debt, with $19 of borrowed money for every $1 of investors’ money. 

Over the next 16 months, until CCC imploded in March 2008, investors did not receive a single dividend payment.

In today's low interest rate, easy money environment Carlyle's fastest growing businesses are their hedge funds and collateralized loan obligations, pooled debt instruments like subprime mortgages.  Before the financial crisis Carlyle lost BlueWave Partners, a hedge fund, in addition to Carlyle Capital Corporation.

Small investors should study Carlyle's history, because their founders, like U.S. Presidents will rewrite the past to favor them in the present. 

Update 6-18-13:  Fitch predicted China's debt bubble will collapse.

Thursday, June 13, 2013

The Big Rubenstein

 WSJ reported:

As for all the noise in Washington and on the presidential-campaign trail about private-equity, Rubenstein said that’s quieted down now.

“Washington has so many problems and so many scandals to focus on that nobody is paying attention to private equity,” Rubenstein said. “If I went down Pennsylvania Avenue and said ‘I’m from private equity and I have some problems I’d want you to address,’ nobody would even care right now.”
Rubenstein's office sits on 1001 Pennsylvania Avenue.  The White House and Congress pander to Rubenstein, Carlyle and their PEU brethren.  PEU's want to be left alone and the rest of Pennsylvania Avenue is complying.

Update 6-19-13:  Carlyle's Rubenstein had dinner at 1600 Pennsylvania Avenue, where the occupant caters to PEU types.

Wednesday, June 12, 2013

Calyle's Booz Holdings Down $134 Million

Booz's CFO spoke today at the William Blair & Co. 33rd Annual Growth Stock Conference in Chicago.  He essentially said nothing about the Snowden affair.  BAH's stock was down $1.26 when he failed to mention Edward Snowden.  It dropped another 20 cents after his presentation.  That's a $134 million cut in The Carlyle Group's BAH stock holdings, which must enrage the DBD's, Carlyle's three co-founders, to no end.  

Tuesday, June 11, 2013

Snowden Faces Monster Wave of Retaliation

The Carlyle Group's investment in Booz Allen Hamilton dropped nearly $80 million since Edward Snowden revealed his identity as the NSA whistleblower.  Carlyle has a reputation for getting elected officials to support their PEU positions.

Politicians, of Red and Blue stripes, called for Snowden's prosecution.  Bloomberg reported:

South Carolina Senator Lindsay Graham (Red Team) described Snowden’s actions “not as one of patriotism but potentially a felony.”  

Carlyle located Vought Aircraft Industries Boeing Dreamliner production in South Carolina as Graham sat on a Senate Defense Committee.

Senator Bill Nelson (Florida Blue Team) said Snowden’s leak of classified information constitutes “treason.”  

Florida is putting up millions in economic incentives for two Carlyle Group affiliates to expand production, TurboCombuster and Chromalloy.

America's Government-Corporate Monstrosity hates losing money and looking bad.  Snowden has a retaliation tsunami headed his way.

Update 6-12-13:  Carlyle's BAH holdings are now down $134 million.  Their impulse for retaliation must be outsized.

Update 6-27-13:  The outsized retaliatory impulse reached reporter Glenn Greenwald.  The Government-Corporate Monstrosity hates to be outed.

Update 7-4-13:  The monster wave of retaliation will keep breaking on Snowden until he goes under. Obama and his minions dined with Carlyle Group co-founder David Rubenstein more than once recently. Snowden made Carlyle's Booz Allen Hamilton look bad, a cardinal sin in the big money/power crowd.

Obama isn't about truth or freedom. He's about parenting the country. Pipsqueak Snowden made Big Daddy look bad and cost his supporters tens of millions, maybe more. That's why Edward Snowden must pay. Get that, other potential whistleblowers?

A Business Theory of Everything: PEU

To whom should America look to solve all our ills?  According to one economist, it's private equity underwriters (PEU's).  For long term unemployment solutions, consider private equity:  WaPo offered:

“Why not make it so you can do that if you set up a venture fund that invests in places we identify as really needing help, where the long-term unemployment rates are in the double digits, you could have advantageous tax treatment?” Let the Carlyle group help us solve the problem. Those are the range of things, and the last one is the thing I’m working the hardest on, and will have a proposal on in a few months.
Ah, The Carlyle Group fixing America's unemployment ills.  That has a certain level of irony.  A former Bloomberg reporter had this to say:

I have seen so many people -- particularly those in their 50s - 70s -- taken apart by what has happened in their industry as greed has hollowed out the economy. These are people took pride in their jobs and held themselves to this invisible standard that we all just took for granted, but is being wiped out.

The Carlyle Group scares me more than anything I've ever seen on Wall Street. It seems to exist to corrupt politicians and it's hard to know who they even represent.

I watched a video interview of (David) Rubenstein and his arrogance is really beyond tolerance. He was going on about the debt ceiling problem and how there would need to be cuts in services and higher taxes. When the reporter asked him about tax on carried interest he turned really disdainful and said that this "only" amounted to $22 billion over some number of years and this was not serious money. Boy, nothing like everybody doing their small part to save the country from oblivion!
How many of those "taken apart" in their 50's (who formerly took pride in their jobs) ended up in the long term unemployed due to Carlyle or their PEU brethren?

Now Carlyle should get access to cheap public financing, tax breaks to re-employ those they decimated, and another chance to profit big from flipping publicly supported ventures?  Only in America's PEU World, supported by politicians Red and Blue.  The Business Theory of Everything is Greed Theory, personified by PEU's.. 

Monday, June 10, 2013

Carlyle Downs Booz Culture

Economic Policy Journal reported on his interview with a former Booz Allen Hamilton employee::

He said no one talks anything illegal at Booz Allen, but there is a kind of code talk where things have a second deeper meaning. "If you understand how the game is played, and can check your integrity at the door, you can get very far in the firm and lead a cushy life," he said. If you are unwilling to play the game or are too naive to understand deeper meanings, you are not going to get very far. He said Booz Allen is infected with a culture that seeks power and access
He didn't go into what exactly goes on at Booz Allen that requires deeper meaning. I just got the sense it was a very dark world and that it was this dark world that my contact believed Snowden was horrified by and caused him to leak the information he did.

My source tells me that Booz Allen always had important USG contracts, but they really picked up when the Carlyle Group bought Booz Allen. That's when you really started to see the Penatgon and CIA contracts flow in, he said. He said that with Carlyle's strong USG contacts, they knew Booz Allen was a perfect firm to take over. He said that's when the firm really started to develop a national security mentality. He said that's when the firm became highly connected with the USG. He said he occasionally saw the Chairman of the Joint Chiefs of Staff at Booz Allen headquarters, as well as Carlyle vice chairman John Michael "Mike" McConnell - former Director of National Intelligence (2007–2009); formerly Director of the National Security Agency (1992–96); retired in 1996 as Vice Admiral, United States Navy, among other high level players.

My source tells me that he fully expects Booz Allen, the Penatgon, the CIA, the NSA etc. to close ranks and go after not only Snowden, but his family. They will go after them in open ways and subtly. The full wrath of the USG is going to come down on them, he says. That's the way the military-industrial-intelligence complex works. Indeed, he says, its the real reason the intelligence part of complex was built, to deal with situations like this.

John Michael McConnell is Vice Chairman of Booz Allen Hamilton, not Carlyle. Alongside McConnell on the Booz board of directors are three Carlyle Group representatives, Peter Clare, Allan Holt and Ian Fujiyama.

Besides McConnell, Booz's Dov Zakheim is a Washington, D.C. insider bringing big government business to the firm.   Dov knows big boys don't pay a price for their misdeeds or incompetence.  It's the Snowden's who do.  The Government-Corporate Monstrosity will ensure it.

Sunday, June 9, 2013

Carlyle Group's Good Name Tainted?

How might the Snowden affair impact Booz Allen Hamilton's stock price Monday morning?  The Carlyle Group holds nearly 92 million shares of Booz, worth over $1.6 billion.

The Carlyle Group is renowned for keeping its good name, even when it and its affiliates behave in questionable ways.  The public is unaware of the many situations Carlyle survived:

1.  Pension pay to play investigations
2.  Twenty five LifeCare hospital deaths post Hurricane Katrina
3.  Landmark Aviation's providing rendition flights
4.  The implosion of Carlyle Capital Corporation
5.  SemGroup's bad energy bets which led to bankruptcy
6.  Oriental Trading's selling toxic jewelry to children 
7.  Yashili selling melamine-tainted infant milk to Chinese mothers
8.  Synagro Technologies' bribing of public officials,
9.  Church Street Management's performing unnecessary and poor quality dental procedures on low-income children to bilk Medicaid

Corporate leaders hate leakers as much as President Obama and Congress.  Their "light shining" damages reputations and cost money.  How much will Snowden cost the Carlyle brand?   Remember Carlyle will do anything to maintain their good name.

Update 6-10-13:  BAH's stock fell 46 cents a share. Carlyle's Booz holdings fell by $42.2 million.  With the Government Corporate Monstrosity duly enraged, Snowden will need help.  Whistleblowers, government and corporate, face a daunting road once they pull the curtain on unethical behavior.  We live in a time when might makes right.     

Update 6-12-13:  Carlyle's BAH stock holdings fell by $134 million thanks to Snowden's revelations.  That simply won't do for a politically connected PEU.

Secret Surveillance Leaker a PEU Contractor

WaPo reported:

Edward Snowden, a 29-year-old former undercover CIA employee, unmasked himself Sunday as the principal source of recent Washington Post and Guardian disclosures about top-secret National Security Agency programs.

Snowden, who has contracted for the NSA and works for the consulting firm Booze Allen Hamilton, denounced what he described as systematic surveillance of innocent citizens and said in an interview that “it’s important to send a message to government that people will not be intimidated.”
The Guardian reported:

In a note accompanying the first set of documents he provided, Snowden wrote: "I understand that I will be made to suffer for my actions," but "I will be satisfied if the federation of secret law, unequal pardon and irresistible executive powers that rule the world that I love are revealed even for an instant."

Snowden worked for Carlyle Group affiliate Booz Allen Hamilton.   Carlyle squarely belongs in the "irresistible executive powers that rule the world" camp.  It's rich that a whistle blower came from inside the PEU camp.   

WaPo added this to Snowden's motivation:

Allowing the U.S. government to intimidate its people with threats of retaliation for revealing wrongdoing is contrary to the public interest.”

Asked whether he believed his disclosures would change anything, he said: “I think they already have. Everyone, everywhere now understands how bad things have gotten— and they’re talking about it. They have the power to decide for themselves whether they are willing to sacrifice their privacy to the surveillance state.”

Snowden counts on a freedom loving country giving him asylum.  That's a risky proposition in today's world.  He noted this in his Guardian interview:

"They're such powerful adversaries.  No one can meaningfully oppose them.  If they want to get you, they'll get you in time."

Obama proved long ago his promises of freedom and justice were simply campaign talk, in hindsight drivel to drive the common man to pull the Blue lever..

Snowden cast light on the immense "architecture of oppression, that will only get worse over time."  WaPo offered more details:

“It was more of a slow realization that presidents could openly lie to secure the office and then break public promises without consequence,” he said.

Snowden said President Obama hasn’t lived up to his pledges of transparency. He blamed a lack of accountability in the Bush administration for continued abuses. The White House could not immediately be reached for comment Sunday afternoon.

“It set an example that when powerful figures are suspected of wrongdoing, releasing them from the accountability of law is ‘for our own good,’” Snowden said. “That’s corrosive to the basic fairness of society.”
President Obama values loyalty over all else.  Snowden's revelations will bring the full measure of retaliation from America's Government-Corporate Monstrosity.  I venture the Obama Administration will use the Snowden leak to deepen spying on Americans at home.

Whistle blowers are the people's only recourse and those in power know it.  That's why we've seen a War on Whistleblowers, be they governmental or corporate.  Welcome to America where the messenger, especially those with ethics and a conscience, are regularly shot.

Update:  Booz Allen released a statement on Snowden, saying they'd do their best to enact revenge.  NYT wrote about Snowden's corporate connections with Rep. Peter King R-NY promising an investigation.  "Were there warning signs? Were there issues in his background?"  I.e. what can we find out that we can use against future leakers?  Forbes reported on the connection as well, even providing slides of leaked information.  Booz's CFO will speak June 12 at the William Blair & Co. 33rd Annual Growth Stock Conference in Chicago. WaPo's Barton Gellman shared his experience working with Snowden.and the leaker's likely fate.

Carlyle Group's PEUpont Now Axalta

WSJ reported:

Nascar driver Jeff Gordon is having a difficult year. The four-time winner of Nascar’s premier series championship is stuck in 11th place overall this season and has struggled lately for wins that used to come more frequently.

He is also getting a sort of fresh start with newly re-named sponsor Axalta Coating Systems, formerly the DuPont Performance Coatings division.

After the Carlyle Group, a private equity underwriter (PEU), purchased Dupont I jokingly referred to the company as PEUpont.  Exalted PEU Carlyle didn't go with my suggestion.  It went with Axalta. 

Gordon will debut his car's new look today at Pocono, just days after Carlyle extended its NASCAR deal with Hendrick Motorsports through 2016.  Note the use of PEU lingo in the announcement:

“We have built up so much equity in the No. 24 team over the years and Jeff Gordon is the best spokesperson any company could ask for,” said Nigel Budden, Axalta Coating Systems North America Business Director 

Watch out Hendrick for when they want to monetize their equity.  It's the PEU way.  Carlyle will cash in.  .

Friday, June 7, 2013

Carlyle PEU Affiliate Rates Carlyle a Buy

Zolmax News reported:

Sandler O’Neill initiated coverage on shares of Carlyle Group LP (NYSE: CG). Sandler O’Neill issued a buy rating on the stock.
Disclosure:  Sandler O'Neill is an affiliate of The Carlyle Group. 

Wednesday, June 5, 2013

Law360 Says LifeCare Being Sold to Carlyle?

The Carlyle Group's bizarre trail with LifeCare Hospitals continued as the parties seek to bring LifeCare out of bankruptcy.  Law360's last two articles raised questions as to who was selling LifeCare to whom.

May 28, 2013

A Delaware bankruptcy judge signed off on a proposed settlement Tuesday between LifeCare Holdings Inc.'s creditors committee and its private equity purchaser, removing the final obstacle to hospital group's $320 million sale to The Carlyle Group LP. 

June 5, 2013

LifeCare Holdings Inc. urged a Delaware bankruptcy judge Tuesday to ignore the federal government's attempt to block proceeds from the hospital chain's $320 million sale to Carlyle Group LP from being paid, arguing the U.S. is wrong about who actually owns the money.

The Carlyle Group lost LifeCare to bankruptcy, as a result of loading the company with debt, then choosing to default on their loans.   The "sale" is a transfer of assets to debt holders, with no cash changing hands.  The $320 million valuation is part fiction, likely needed to keep LifeCare's Medicare capital cost reimbursement from imploding. 

While Carlyle was happy to take Uncle Sam's money for services, it wasn't much for paying taxes.  LifeCare owes the federal government $24 million, an issue in LifeCare's bankruptcy settlement. 

What if Law360 is right and The Carlyle Group asset holder is selling to The Carlyle Group debt holder in a Byzantine deal?  If so, we're down the PEU rabbit hole.  My guess is it's a reporting error

To confirm my suspicion I sought the original bankruptcy documents from the Delaware Bankruptcy Court.  Public access included a charge of $10 per page to view their documents.  While PEUReport remains free of advertising or charges, it's becoming more difficult to access information hidden behind pay walls.  That said, I'll do my best to find answers to my questions.   

Monday, June 3, 2013

CalPERS to Sell Carlyle Group Stake

Reuters reported:

The sale of Calpers's stake in Carlyle - valued at $373.3 million as of the end of stock market trading on Monday - comes 13 months after Carlyle's initial public offering. Its shares have risen 34 percent since then.

Calpers, which is the biggest U.S. public pension fund and is also an investor in many of Carlyle's funds, acquired a 5.5 percent stake in Carlyle in 2001 for $175 million.

That's a $198.3 million profit from holding Carlyle for twelve and a half years, roughly a 9% annual return on equity.  This is well below Carlyle's historical 30% annual investor return, frequently hawked by co-founder David Rubenstein.

In February 2001 The Carlyle Group managed $5.8 billion in assets.  That's now $176.3 billion.  Assets under management grew nearly 3,000%, while CalPERs equity investment return came in at single digits.

Consider this statement when CalPERS bought 5.5% of Carlyle, which later fell to 4.1% due to share dilution:

The $170bn pension fund took a stake in US private equity powerhouse The Carlyle Group in a deal valuing the private equity firm at $3.5bn.
Carlyle is now the $170 billion PEU fund.  Bloomberg reported on Carlyle's valuation when it went public

The IPO values Carlyle at about $6.7 billion.

How will current unit holders fare?.  It's not clear, but we know private equity mavens like to exit high.   CalPERS Carlyle investment is hardly the expected home run for an early investor in an explosive market segment. 

As for why Calpers may be leaving the Carlyle fold, consider the pension's recommendations for Nabors Industries board.  Carlyle's eunuch unit holders have similar rights as Nabors shareholders.  Did CalPERS grow a set?

Update 6-6-13:  The 11.06 million common unit public offering has been priced at $27.00 per unit.  That means CalPERS grosses $300 million, not even a double for holding Carlyle for a Baker's dozen. That's slow rising dough...

PEUtraeus to Attend Bilderberg

General David Petraeus will attend The Bilderberg Group meeting in Watford, England this week.  KKR, a private equity underwriter (PEU), couldn't have scripted a better kick off for Petraeus, their new Global Institute head.  PEUtraeus will be amongst his brethren.  The Telegraph revealed the expected 2013 Bilderbergers:

Other PEU's in attendance include James A. Johnson (Perseus), Robert Rubin (Centerview), Roger Altman (Evercore), Mustafa Koc (Monument Capital and JV partner with The Carlyle Group), Henry Kravis (KKR), and the Lazard trio Kenneth Jacobs, Vernon Jordan and Peter Mandelson. 

Mandelson helped negotiate the freedom of the Lockerbie bomber before the West turned on the Ghadafi's, who they'd courted since 2006.  The Carlyle Group sought to entice the elder Ghadafi and his son Saif. 

Other global tamperers attending Bilderberg 2013 include Henry Kissinger, Richard Perle, James Wolfensohn and Robert Zoellick. 

I expect there to be a few super secret drop ins.  It's hard to run a global tampering meeting without a Clinton or Bush. 

Sunday, June 2, 2013

The Carlyle Group, Gambling & Delaware Courts

The Carlyle Group successfully defeated Kuwait's National Industries Group over the proper jurisdiction for a lawsuit on NIG's failed $25 million investment in Carlyle Capital Corporation (CCC).  The judgement referred to a prior suit by Michael Huffington over a similar loss in CCC.  Page 30 of the Court's opinion states:

The recent decision of our Superior Court in Huffington v. T.C. Group is instructive here.  As described above, the plaintiff in that dispute, seeking to recover his investment in the collapsed Carlyle Capital Corporation, had filed suit in Massachusetts asserting claims under a Massachusetts blue sky law, despite the existence of a forum selection clause in favor of litigation in Delaware. After the U.S.Court of Appeals for the First Circuit had dismissed his suit, he brought his claims to the Superior Court–but at a point when they had become untimely. The Superior Court refused to waive the operation of the Delaware borrowing statute, which would allow the plaintiff to make his claims, because the plaintiff “tried to avoid the clear and unambiguous forum selection clause by filing in [the foreign forum].  He clearly sought to avoid litigating his claims here.  Sometimes when you gamble, you lose.”

Here, National deliberately chose not to sue in the contractually proper forum, and failed to take repeated chances to raise its claims in a timely manner in Delaware despite knowing that Carlyle intended to enforce the forum selection clause. National gambled and lost. There is nothing unreasonable about enforcing the forum selection clause against National, because any harm it has suffered is entirely self-inflicted.
Oddly, while searching the Delaware Court for decisions I noted a lawsuit by investors of China Agritech, a fertilizer company and Carlyle Group affiliate.  The Delaware lawsuit opens with the plaintiff's assertions:

China Agritech, Inc. ("China Agritech" or the "Company") purportedly operates a fertilizer manufacturing business in China. According to lead plaintiff Albert Rish, China Agritech is a fraud that serves only to enrich its co-founders, defendants Yu Chang and Xiao Rong Teng. Rish has sued derivatively to recover damages resulting from (i) the Company‘s purchase of stock from a corporation owned by Chang and Teng, (ii) the suspected misuse of $23 million raised by the Company in a secondary offering, (iii) the mismanagement that occurred during a remarkable twenty-four month period that witnessed the terminations of two outside auditing firms and the resignations of six outside directors and two senior officers, and (iv) the Company‘s failure to make any federal securities filings since November 2010 and concomitant delisting by NASDAQ. Before filing suit, Rish used Section 220 of the General Corporation Law, 8 Del. C. § 220, to obtain books and records, and his complaint relies both on materials that the Company produced and on the glaring absence from the production of books and records that the Company should have readily possessed and provided.
The Delaware Court's Kuwait opinion repeatedly cited how Carlyle and National Industries are large, sophisticated international organizations.  While The Carlyle Group isn't mentioned in the China Agritech shareholder suit, here's what their initial press release said:

China Agritech Co., Ltd specializes in R&D, production and marketing, as well as technical consulting services for high-tech green agricultural products in China. China Agritech is focused on improving productivity and the quality of life for farmers in China. They provide farmers with innovative, value-added and cost-effective products and services to help farmers achieve sustained growth in their income. The company has established five production bases in Harbin, Hebei, Anhui, Chongqing and Xinjiang. With tens of thousands of agricultural marketing professionals, their sales network spanning the whole country is continuously growing.

“We are fully leveraging the global resources of The Carlyle Group to back our partner companies with both capital and management expertise. Most importantly, we will continue to seek opportunities to help Chinese enterprises with unique business models and strong growth strategies to expand in an increasingly globalized economy."
Carlyle invested in China Agritech in October 2009 and had the right to appoint one board member.  Carlyle appointed Zheng "Anne" Wang.  China Agritech filed to issue 100 million additional shares in February 2010.  That dropoed to 3.1 million shares at nearly $30 each by April 2010.  Did China Agritech's shareholders count on The Carlyle Group's promise of added managerial expertise?

Here's how Carlyle's full leverage turned out (from the SEC's delisting document October 2012):

China Agritech last filed a periodic report on November 10, 2010, when it filed a quarterly report on Form 10-Q for the quarter ended September 30, 2010. Since that time, China Agritech has failed to file annual reports on Form 10-K for the fiscal years ended December 31, 2010 and December 31, 2011, and has failed to file quarterly reports on Form 10-Q for the quarters ended March 31, 2011; June 30, 2011; September 30,2011; March 31, 2012; and June 30, 2012. 
Recall these are large, sophisticated international organizations who gamble and lose, with any harm self-inflicted.   At least that's one opinion from a Delaware Court.

Saturday, June 1, 2013

Disgraced Leader to Head Yet Another Global Institute

Monetary and sexual sins are easily forgiven in the Government- Corporate Monstrosity, President/General Dwight D. Eisenhower's Military-Industrial Complex on trillions in federal steroids.  Junk bond trader Michael Milken was the first to form his Milken Institute after his release from jail.

The Milken Institute seeks to enable the seamless flow of capital and commerce around the world by connecting capital-rich multinational firms and investors with countries willing to implement best practices to create, accelerate and sustain long-term economic growth and development through the Access to Global Capital Initiative. 

President Bill Clinton went from "not having sex" with that intern to forming his Clinton Global Initiative.

CGI members utilize their existing expertise and the power of collaboration to engage the market, using it as a tool to generate positive social impact across a diverse spectrum of constituents. These constituents range from individuals at the base of the pyramid, to small-to-medium enterprises (SMEs), to investors and multi-national corporations pursuing double or triple bottom line goals. CGI members focus on issues such as financial inclusion at the base of the pyramid, SME growth and innovation, redefining the future of capitalism, and emerging trends in impact investing. 

Now private equity underwriter (PEU) KKR will form its Global Institute with another philanderer, General David Petraeus.

KKR said the global institute will help it focus issues that can affect its global investments. Those include public policy, regulatory and technology trends. The institute also will build on KKR's push to help its portfolio companies expand globally.

There really is no shame in the GCM, just a brief time to lay low, followed by a time to monetize one's connections.  Both political parties, Reds and Blues, play the game.