Saturday, March 29, 2014

GM Recall Focuses on Executives without Carlyle Affiliation

Reuters reported:

When General Motors Co Chief Executive Mary Barra faces Congress next week she will have to explain how the top brass at the biggest U.S. automaker can say they knew nothing for more than a decade about a faulty ignition switch linked to crashes and at least 12 deaths.

GM's CEO "gets high marks for admitting wrongdoing. On the other hand, she hasn't been there very long," said Senate Commerce Committee Chairman Jay Rockefeller, a West Virginia Democrat, who is overseeing the Senate hearing.

The article mentioned former GM CEOs Rick Wagoner and Fritz Henderson, but omitted Barra's predecessor, Daniel Akerson.  Akerson left The Carlyle Group to head up GM for four years, recently returning to Carlyle as Vice Chairman and accepting a board seat at Lockheed Martin.  

"Why did these dots not get connected? Or worse, if they were connected, why did it take so long to do something?" said one former executive with experience in service matters, who asked not to be identified.

It's the PEU way, never admit error or responsibility.  Carlyle executives know how to keep their good name.

The senator said he would look at documents and listen to testimony before deciding about GM, and that the committee would be looking for explanations. "You have to have lessons," he said.
The lessons don't have to be the result of a competent investigation.  New Jersey Governor Chris Christie showed that just days ago.

An older version comes from the White House Lessons Learned report on Hurricane Katrina.  Author Frances Townsend omitted LifeCare, the Carlyle owned hospital chain, and their 25 deaths from Hurricane Katrina.  She made no mention of Memorial Hospital, where LifeCare rented a floor and the facility's total 35 deaths in Katrina's aftermath.

One year after the Bush White House gave Carlyle's LifeCare and Tenet a free pass, Jeb Bush was appointed to Tenet's board of directors.  There are lessons, some less obvious. Even Reuters may know who not to challenge.

OregonLive indicated Akerson should've been aware of the problem:

Cobalt owner Penny Brooks feels betrayed by GM and by the government. She bought a used 2005 Cobalt, with 40,000 miles on it, five years ago. Last year, her husband was driving about 60 mph when the engine suddenly stalled. They made it safely to the side of the road and took the car to a mechanic, who could find nothing wrong.

Since then, the car has stalled two more times when Brooks hit bumps in the road that caused the ignition to slip out of the run position. "Nobody should have to sit there and pray, 'Keep me safe until I get back home,'" said Brooks, a licensed cosmetologist from Kingsport, Tenn.

She filed a complaint on NHTSA's website last year and says she even wrote a letter to GM's then-CEO, Dan Akerson, but got no responses.

Welcome to my world Penny Brooks, where the stories grow more disturbing over time.  Townsend, Bush, Akerson are in the club.  We aren't.

Update 4-1-14:  Detroit Free Press reported: "Pressed for the first time publicly on whether her predecessor, CEO Dan Akerson, knew about the ignition switch defect, Barra responded: 'Not to my knowledge.'"

Update 4-4-14: Many aren't buying the free pass given former CEO Dan Akerson in this case.  Private equity mavens rarely talk about their real failures.  Sure, they'll throw in a red herring, one that is a PEU compliment in disguise.  I'd venture Akerson made it clear no negative news was to rise to his office.  Not acknowledging bad news is a classic PEU move.

Update 4-8-14:  Forbes picked up on this possibility with a story.  They referred to it as a "conspiracy theory."  The simple way to end such talk is have Akerson testify under oath.

Update 4-19-14:  Fortune ran a serious piece on this theme (nearly three weeks after PEUReport).

Update 7-23-14:  The AP reported "GM is conducting a company wide safety review as it tries to correct a dysfunctional corporate culture in which safety was a low priority."  Akerson was the most recent CEO of safety silent GM.

Architect Ezekial Emanuel Finally Pulls PPACA Curtain

"Step right up, Ladies and Gentlemen.  Witness the blue-chip employer Great Health Insurance shedding.  Watch Captains of Industry slither from past promises.  Dare to look as they gnash on retirees' pocketbooks!"

NYT's You're the Boss:  The Agenda shared a prediction by Ezekial Emanuel, M.D., a paid advisor to the Obama White House on health reform (PPACA):

By 2025, “fewer than 20 percent of workers in the private sector will receive traditional employer-sponsored health insurance.” The source of this claim? Dr. Ezekiel J. Emanuel, in his just-published book, “Reinventing American Health Care.” 

Dr. Emanuel is an accomplished oncologist, medical ethicist and academic (and contributing opinion writer to The New York Times). And, of course, he’s no stranger to politics: He helped craft the Affordable Care Act as a health policy adviser to the Obama administration

Mr. Emanuel argues that in the next two or three years, “a few big, blue-chip companies will announce their intention to stop providing health insurance. Instead, they will raise salaries substantially or offer large, defined contributions to their workers. Then the floodgates will open.” He says that few small businesses will join the SHOP exchanges set up for them and that most of those that offer coverage are even more likely than big companies to drop it, since those who employ fewer than 50 workers face no mandate to offer it in the first place, which Mr. Emanuel thinks is fine.
How kind of Dr. Emanuel to reveal the end game for PPACA.  It is five years after my prediction.

I believe reform sets the table for employers to shed that pesky health insurance benefit.
Many big, blue chip employers recently jettisoned retirees from their health plan, foisting them into individual exchanges with a defined contribution.  PPACA provided $5 billion to employers to encourage maintaining early retiree health coverage.  Over $2 million went to the owner of Newport News Shipbuilding, which later dumped their over 65 retirees onto an exchange.   Other companies jettisoning retirees include:

IBM, TimeWarner, Energizer, DuPont, GM, Ford, Honeywell, 3M and Caterpillar 
These are big, blue chip companies who already did to retirees what Emanual states they'll do to their employees.

Presidents Obama and Clinton got together to push PPACA last year.  I wrote:

PPACA set up the acceleration of the great employer health insurance shedding, already well underway.  It also rejiggered the health care table for private equity underwriters (PEU's) to make billions buying and selling health care companies.  Think KKR and HCA, Cerberus and Caritas Christi Health System, Gentiva and Capstar's Harden Healthcare, CCMP Capital Partner's sale of CareMore to WellPoint. 
Obama's White House Health Reformer had PEU origins and returned to her PEU roots after her public service.  Look for Nancy-Ann DeParle's Consonance Capital to lever PPACA to great profit. 
Oddly, Nancy-Ann continued to receive private equity distributions from previously undeclared investments while serving in the Obama White House.  No conflicts here.  As P.T. Barnum would say "Move on the to Great Egress."

The Great Egress is where employer sponsored health insurance is going.  President Obama's advisors finally told us so, five years after implementing the game plan.

Catch Ezekial Emanuel on CNBC Sunday to hear it from the barker's mouth.

Update 11-16-14:   CNBC reported PPACA's future could include "Employees may experience up to a $6,150 reduction in their health-care benefits and little or no increase in their pay."

Update 12-8-14:  Ezekial laid the groundwork for the government to stop paying for medicines and treatments for people 75 and older.  Pretty easy for a 57 year old to say.

Update 6-18-17:  Ex-President Obama accepted $400,000 to speak for one hour at Cantor Fitzgerald's healthcare conference this September.  The man who turned health care further into a for-profit wasteland is getting his payback.

Update 3-15-18:   Skyhigh healthcare costs differentiate the U.S. from the rest of the globe.  PPACA's cost curve bent in the wrong direction, acceleration.

Update 7-4-19:   Health equity declined since 1993 despite PPACA's promises.

Update 9-25-19:  Employers shifted costs to employees via higher deductibles and increased co-pays.   PPACA has not helped make healthcare more affordable.  It has made a lot of money for the PEU boys.

Update 4-16-20:  A coronavirus pandemic revealed America's broken healthcare system and PPACA's many shortcomings. How many  22 million newly unemployed  can afford the premiums?  How many of these will get COVID-19 and die at home without proper care?  

Thursday, March 27, 2014

Rubenstein's Latest PEU Lament

After Jim Cramer rolled over on the subject of private equity Carlyle Group co-founder David Rubenstein told CNBC;s national audience of private equity's difficulty in getting their message out:

"I wish we were better at getting our message across, so maybe we should figure out how to do that better.  But in the end private equity (underwriting) (PEU) is a great industry for the United States."
Yes, they employ many retired politicians and public servants, but how does a guy with regular public access via CNBC, Bloomberg, WaPo, WSJ, FT, get his backside handed to him, such that the public has negative perceptions of private equity?  I'd venture it's the stark hand dealt to employees within the PEU family.  Word of mouth on jobs cut, retirement plans frozen or eliminated, years with no pay increases and the trauma of being flipped beats slick PEU ads and presentations. 

Private equity has earned its reputation with each and every management stroke.  It's the PEU boys that get the happy ending.  Everyone else, not so much.

Update 6-22-14:  Forbes did a piece on Cramer vs. Rubenstein. 

Tuesday, March 25, 2014

Dimon Protege to Diversify Carlyle Group

Bloomberg reported:

When former JPMorgan Chase & Co. (JPM) executive Mike Cavanagh arrives at Carlyle Group LP (CG) this summer, he’ll be asked to expand a firm that’s fallen behind rivals even as it delivers some of the best returns in private equity.

Carlyle, the second-largest manager of alternative investments such as private-equity funds and real estate, has increased its assets at a 13 percent annual rate in the past two years, the slowest pace among peers, according to calculations by Bloomberg. Blackstone Group LP (BX), the largest private-equity manager, expanded at a 26 percent pace, the same as KKR & Co. and Apollo Global Management LLC (APO) grew at a 46 percent rate. 

Cavanagh, 48, until today co-chief of investment banking at JPMorgan and a close deputy to Chief Executive Officer Jamie Dimon, will need to find ways to further diversify Carlyle from private equity and expand assets. He will share a co-president role with Glenn Youngkin, a 19-year veteran of the firm, Washington-based Carlyle said in a statement. 

Fortune added:

Moreover, there are fewer regulatory headaches at a private equity firm than at a Wall Street bank -- not to mention fewer Congressional hearings (Cavanagh didn't get rave reviews for his performance last March at a Senate hearing on the London Whale).
Cavanagh looks like he'll fit in well with the Great Whites. May there be chum in PEU waters.

Update 3-29-14:  Cavanagh will earn $7 million per year as Carlyle's co-President.  Carlyle submitted an SEC filing detailing Cavanagh's pay.

Sunday, March 23, 2014

Corporate Lies, Shareholder Recourse: Carlyle's SemGroup Implosion:

NYT reported:

Companies do not have a right to lie to their shareholders, a German judge ruled this week. But sometimes, she added, lies are necessary.

And with that Carola Wittig, a judge in the state court in Stuttgart, dismissed a suit filed by a group of hedge funds that lost a lot of money when Porsche Holding, the owner of the Porsche automaker at the time, lied about its intentions regarding Volkswagen. 

The article went on to describe a looming U.S. court case that could eliminate erode shareholder recourse.

The United States Supreme Court is considering whether to reverse a decision it made a quarter-century ago and in effect make it impossible for most investors to ever recover if they fall victim to corporate lies. A decision is expected by June.
There often can be layers of lies.  Take The Carlyle Group's defense of a SemGroup investor lawsuit.  SemGroup declared bankruptcy from billions in energy trading losses, something not referenced in the company's SEC filings.   Carlyle's lawyers used a "puffery" defense.  The judge didn't take Carlyle's bait:

Vague statements of corporate optimism or "puffery" cannot be materially misleading because "generalized statements of optimism are not capable of objective verification and reasonable investors do not rely on them in making investment decisions."
Carlyle and company settled the case in 2011 for $28 million in cash and stock.  Don't cry for Carlyle as they'd already pulled $106.9 million in partner distributions from SemGroup.  That's $2 million more than their initial investment.

The looming question involves PriceWaterhouse-Coopers (PwC), SemGroup's accounting firm.  SemGroup's bankruptcy trustee is suing PwC for accounting failures, which resulted in larger financial losses for the company's creditors.  The court filing states:

Remarkably, in July 2008, just four months after PwC's last clean audit opinion - and during an oil boom - SemGroup collapsed and filed for bankruptcy protection. After SemGroup filed for bankruptcy, PwC withdrew the audit opinion it had issued in March 2008, saying that it was no longer reliable.

The Trust contends that PwC failed to exercise due professional care in performing its role as an auditor for its client, SemGroup. PwC knew or should have known that that certain transactions were improperly reported in SemGroup's financial statements. PwC knew, for example, that SemGroup's CEO was using company money to fund over $300 million of his own personal financial losses and that this was not reported properly and completely in the financial statements. By March 2008, when PwC issued its audit report, PwC also knew or should have known about SemGroup's precarious financial condition. But rather than conduct any extended "going concern" procedures or issue any "going concern" warnings in its audit report, PwC gave SemGroup a clean bill of health, and SemGroup collapsed just four months later.

A jury trial is set for August 11, 2014.  Companies lying to shareholders is concerning enough.  What happens when auditors, the arbiters of truth, do likewise?

Saturday, March 22, 2014

Carlyle Group Goes for Gold reported:

Vermillion, the commodity arm of the formidable US private equity group Carlyle Group, started trading a new gold and base metals fund this month as it seeks to rebuild market presence after losing more than half of its capital, Reuters reported this week. It's not a big fund, with capital of just $122.5m from 23 investors, but it looks interesting. 

Despite Vermillion's ups and downs in commodities, the fund has "won a liking for its physical premium play in metals, combined with options trading", Reuters reported.
Reuters reported:

Vermillion lost more than a $1 billion in assets under management last year.
Vermillion's assets fell from above $2 billion in March 2013 to around $900 million by December.
How might formidable Carlyle (and its long term money) recover their investment in Vermillion?

Wednesday, March 19, 2014

Banks Bourne Hosts Carlyle's Rubenstein

BusinessWire reported:

“At Bourne Partners, we believe strongly in leveraging our network of industry experts and corporate connections in order to play an active role in helping businesses grow.” 

Bourne Partners, a healthcare advisory and merchant banking firm comprised of Bourne Capital Partners, LLC (BCP) and Bourne Partners Alternative Assets, LLC (BPAA), held its annual conference recently, with industry leaders participating in a variety of panel discussions regarding healthcare, consumer and private equity issues.

The two-day event featured several prominent speakers, including Joe Piemont, President and COO of Carolinas HealthCare System; David Simmons, CEO of Pharmaceutical Product Development, LLC (PPD is a Carlyle Group affiliate); and David Rubenstein, noted philanthropist and co-founder of The Carlyle Group. 
The greed and leverage crowd aim to remake healthcare.  Rest assured their billions in added interest expense, dividend bleeding and 30% annual return on equity will cost health care consumers dearly. 

Monday, March 17, 2014

GM's Ackerson Rejoins Carlyle Group

Ex-Carlyle Group Managing Director Daniel Ackerson served as GM's CEO from 2010 to January 2014.  Since his retirement GM has been rocked by a series of recalls.  Some questioned the company's silence in the face of deadly defects.   Nearly four years of that silence occurred under Ackerson.

General Motors has been getting a lot of attention and criticism for its recall of 1.6 million vehicles worldwide to deal with an ignition switch problem. GM engineers knew at least as early as 2004 of the problem, but the company did not recall the vehicles until February of this year. At least 12 deaths have been linked to the problem with the ignition switch. And the number of vehicles covered by the recall has doubled since it was originally announced.

Ackerson rejoined Carlyle as Vice Chairman and Special Advisor to the Board of Directors, which is essentially run by the Carlyle's co-founding triumvirate   It's nice he had a safe place to go back to.  Others aren't so lucky.

Sunday, March 16, 2014

USEC Bankruptcy Prism for Government-Corporate Monstrosity

Bloomberg reported:

USEC Inc. (USU), a producer of enriched uranium for nuclear power plants that was sold by the U.S. government in 1998, sought bankruptcy protection with a plan to hand control to noteholders after an oversupply of the fuel hurt its business. The shares fell as much as 29 percent. 

The Bethesda, Maryland-based company, which buys some uranium from Russia under a 10-year contract, listed assets of $70 million and debt of $1.07 billion in Chapter 11 papers filed today in U.S. Bankruptcy Court in Wilmington, Delaware. USEC said in December that it would file bankruptcy to replace $530 million in senior convertible notes coming due in October. 
Interestingly, the bankruptcy will have no effect on Uncle Sam's plans to fund USEC's new production facility in Ohio.  The Energy Department is paying the lion's share of the new facility's cost, currently pegged at $241.3 million.

On April 26, 1996 Bill Clinton signed into law the USEC Privatization Act.

A walk back in time shows President Bill Clinton appointing a 44 year old Connecticut based investment banker as President of USEC.  This is from USEC's first 10-K report as a public company:

William H. Timbers, Jr. has been President and Chief Executive Officer of the Company since 1994. He was appointed USEC Transition Manager in March 1993 by President Clinton. Prior to this appointment, Mr. Timbers was President of The Timbers Corporation, an investment banking firm based in Stamford, Connecticut, from 1991 to 1993. Before that, he was a Managing Director of the investment banking firm of Smith Barney, Harris Upham & Co., Inc. in New York and San Francisco. 

USEC's 1998 filing showed no interest expense and current assets of $2.7 billion.

By the end of 2003 long term debt had grown to $500 million and annual interest expense was $38.4 million.  $350 million of the total debt was due in 2006 and $150 million in 2009.  USEC's total debt-to-capitalization ratio was 36% at December 31, 2003.

In September 2007, USEC issued $575.0 million in convertible notes. The notes bear interest at a rate of 3.0% per annum payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2008. 

At the end of 2008 USEC's $575 million in 3.0% convertible senior notes due October 1, 2014 had a fair value of $207 million or 36 cents on the dollar.  That was the midst of the financial crisis when the big money boys didn't trust one another to make good on their debts.

Oddly, USEC's bankruptcy will pay noteholders more than 36 cents on the dollar.

The 3 percent notes traded at 39.5 cents on the dollar at 9:49 a.m. in New York, up from 39 cents yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The noteholders will have a recovery of 39 percent and the preferred shareholders 35 percent from the new debt, USEC said.

In 2008 USEC had $242 million in revenue from Japan.  That was roughly 15% of revenue.  The uranium enrichment business in Japan dried up with the post-tsunami nuclear disaster at Fukushima Daiichi.  Below is the strategic context from the company's 2013 10-K.

USEC is a business undergoing a strategic transition as we seek to re-position our enrichment business for long-term success. Going forward, we are preparing for the transition of the Paducah GDP, with the current arrangement that extended commercial enrichment at Paducah expected to end during 2013 and the expected de-lease of the site back to DOE in 2014. We are preparing to be a significantly smaller company with lower revenues as we transition from having two sources of supply that provide approximately 10 to 12 million separative work units (“SWU”) per year to making sales from our existing inventory and from future purchases of LEU from Russia at lower quantities. In addition, we continue to pursue commercialization of the American Centrifuge technology, which we believe is the best path to remaining a competitive producer of LEU in the long-term and to maximize value for all stakeholders. We are seeking to position the American Centrifuge project technically through a cooperative cost-sharing research, development and demonstration (“RD&D”) program with DOE. We are also in parallel working to position USEC financially to move forward as a stronger sponsor of the American Centrifuge project. USEC expects to face a period of several years while we are continuing to work to deploy the American Centrifuge project where our sole sources of supply will be our existing inventory and purchases of Russian LEU. The strategic transition is occurring in a very complex economic and political environment and in a nuclear fuel market that continues to be negatively impacted by the incident at the Fukushima Daiichi nuclear power plant in Japan in March 2011, with more than 50 reactors in Japan and Germany remaining offline at the start of 2013. Given our desire to improve USEC’s credit profile so we can successfully finance, deploy and retain maximum value in the ACP, we are engaged with advisors and certain stakeholders on alternatives for a possible restructuring of our balance sheet.

Thus, the bankruptcy.  The current environment may be the perfect storm for USEC.  How long will Russia deliver low enriched uranium to USEC as rhetoric heats up over Ukraine and Crimea?

The American Centrifuge project is on schedule and under budget, according to a Nov. 4 company release.  The Energy Department is covering 80 percent of the cost and USEC the remainder under a June 2012 agreement.

It's interesting to see the huge commitment Uncle Sam has made to USEC.  How many businesses can get a monstrous nondebt, nonequity capital injection that essentially funds the company's future?   This is but one face of the Government-Corporate Monstrosity, Eisenhower's Military-Industrial Complex on trillions in federal steroids.  It has both a Blue (Clinton) and Red (Bush) face.

Saturday, March 15, 2014

Carlyle's Claren Road Rents Top Floor of 51 Astor Place

The Real Deal reported:

Claren Road Asset Management, a credit-focused money manager that is a subsidiary of private equity giant the Carlyle Group, will take the top floor of Edward Minskoff’s 51 Astor Place, The Real Deal has learned. The 25,401-square-foot space was asking a rent of $118 per square foot, a record for Midtown South. Sources familiar with the transaction said that it was likely the priciest per-square-foot deal struck in the neighborhood.
Three years ago Carlyle purchased 55% of Claren Road from its founders:

Claren Road serves as the investment adviser to private pooled investment vehicles, or funds, that are offered to investors on a private placement basis. 

This includes public pension funds.  Claren Road's fee disclosure for public pension funds stated:

As the fund administrator to Claren Road Credit Partners, LP, GlobeOp provides general administrative services that from time to time include assistance with the subscription processes of public pension plans. Because GlobeOp’s compensation for such fund administration services is calculated as a fixed amount based on total assets under management, no compensation is paid specifically with respect to the investment of any particular public pension plans. 

Not until the funds assets under management increase and a new fixed amount is calculated.  At that point compensation is clearly paid.

The cost of Claren Road's new office space will be borne by investors, including public pension funds.  Underfunded pensions need to roll the dice to catch up which helps sell Claren Road and Carlyle's other investment offerings.

Monday, March 10, 2014

Right PEU Moves for Chelsea Clinton

Three years working for Avenue Capital likely gave Chelsea Clinton her wealth base.  The opportunities have only grown for Chelsea (as indicated by her bio in IAC Interactive's 2013 proxy statement):

Chelsea Clinton, age 33, has been a director of IAC since September 2011. Ms. Clinton is currently pursuing a doctorate in public health at Oxford University and working as an Assistant Provost at New York University, where she has focused on interfaith initiatives and the university's Global Expansion Program since March 2010. Since September 2011, Ms. Clinton has also served as a member of the boards of directors of the Clinton Foundation and the Clinton Health Access Initiative. Ms. Clinton also currently serves as a special correspondent for NBC news. Prior to these efforts, Ms. Clinton worked as an associate at McKinsey & Company, a consulting firm, from August 2003 to October 2006, and as an associate at Avenue Capital Group, an investment firm, from October 2006 to November 2009. Ms. Clinton also currently serves on the boards of directors of The School of American Ballet, Common Sense Media and The Weill Cornell Medical College. In nominating Ms. Clinton, the Board considered her broad public policy experience and keen intellectual acumen, which together the Board believes will bring a fresh and youthful perspective to IAC's businesses and initiatives.
The IAC board has a number of corporate legends.  That's quite the training ground for Chelsea.  Her board compensation from IAC was $299,991.  That tidy sum beats intern wages.

Update 3-15-14:  Washington's Blog noted the Clinton's corporate ways, including daughter Chelsea.

Update 3-23-14:  For a Clinton family selfie, click here.

Update 7-27-14:  NYPo noticed Chelsea's fantastic opportunities.

Sunday, March 9, 2014

Carlyle Owner Turns Atttention to Developed Markets

SWF Institute reported the Mubadala Development Corporation would turn its attention away from emerging markets to developed ones, like the United States and Europe.  Mubadala is an Abu Dhabi state owned sovereign wealth fund, which owns or has stakes in a number of U.S. companies, including The Carlyle Group.  Will Mubadala compete or partner with Carlyle in U.S. investments?  How far will they drive up asset prices?  Will it be bubblicious?

Anything can happen on the PEU road to riches... 

Saturday, March 8, 2014

BankUnited Now PEU Free

BusinessWire reported:

BankUnited, Inc. (NYSE:BKU) (the "Company") announced today the closing of the sale of 11,853,276 shares of common stock by investment funds affiliated with The Blackstone Group, The Carlyle Group, WL Ross & Co. LLC and Centerbridge Partners, L.P. (the "Selling Stockholders"). Upon the closing, the Selling Stockholders no longer own any shares in the Company.

The PEU profitization is complete, thanks to $2.27 billion in cash from Sheila Bair's FDIC to the BankUnited's private equity owners.  The FDIC eventually subsidized BankUnited to the tune of $5.9 billion.

Here's how Carlyle fared after putting up 22% of roughly $900 million to takeover BankUnited from the FDIC.  Carlyle sold their 20.4 million shares for an average price of $28.60 per share in a series of stock offerings.  Carlyle's $200 million investment turned into  $585 million in proceeds, a $385 million profit.

Sheila Bair not only saved the banking system, she gave Carlyle one of their quickest and most profitable financial investments.  That's a sweet combination in today's PEU world.  Put her on a PEU owned bank board!

Governor's Office Coming to Town

Governor Rick Perry will send representatives from his office to San Angelo on May 1 for a Town Hall meeting to discuss the Texas Enterprise Fund, water finance, Skills Development Fund, and the Emerging Tech Fund.  May 1 is a Thursday and the Town Hall meeting will start at 11:30 am.

Local angles to this story include:

1)  Hirschfeld Industries direct receipt of Texas Enterprise Fund (TEF) monies, much of which has been refunded to lack of performance 

2) Hirschfeld Industries indirect benefit from Skills Development Fund monies, intended to train 133 employees at their wind turbine plant through Howard College.

3)  This blogger who noticed Vought Aircraft Industries abject failure to meet its TEF promise of 3,000 new Texas jobs, yet got to keep $35 million for six years before refunding the money a trickle at a time.  The Carlyle Group owned Vought for the whole performance period and greatly appreciated Texas taxpayers' nondebt, nonequity capital injection with the tiniest of strings attached.

Rest assured the Governor's Office is not coming to town for PEUReport - StateoftheDivision who repeatedly showed this massive corporate handout followed by blatant lies of "jobs created."  The Governor must have a new present for citizens or want to wrap up a prior project in a nice bow.  Time will reveal PEU Governor Rick Perry's intent.

Thursday, March 6, 2014

Carlyle's Vermillion the New Blue Wave?

Reuters reported:

U.S. private equity group Carlyle said assets at its commodities hedge fund Vermillion fell by more than half in the nine months to December, suggesting investor redemptions at the fund after some negative returns.

New York-based Vermillion Asset Management was managing about $2 billion in March 2013 but that fell to around $900 million by December, Carlyle said in regulatory filings to the U.S. Securities Exchange and Commission.

It brings to mind Carlyle's hedge fund Blue Wave Partners, which suffered similar redemptions which caused the fund to be rolled up.  Rest assured these do not count against Carlyle's 30% annual return on equity. 

EPJ Finds Pics of Carlyle Co-founders' Private Jets

Robert Wenzel of Economic Policy Journal found pictures of private jets owned by the Carlyle Group's three co-founders, David Rubenstein (D), Bill Conway (B) and Daniel D'Aniello (D). These three gentleman are known as "policy making" billionaires.  Two of the three plan to monetize a small chunk of their Carlyle Group equity holdings.  

Update 5-1-22:  I am saddened to report the death of Robert Wenzel.  His family said Robert passed away peacefully in his sleep on May 25th, 2021.  I am grateful to have learned from him and wish his family peace.  May their memories of Robert be of solace.

Wednesday, March 5, 2014

Carlyle Co-founders Private Jets

Amendments to The Carlyle Group's 2013 10-k reveal three leases for private planes, one for each Carlyle co-founder.

Falstaff Partners, LLC -- David M. Rubenstein
Westwind Acquisition Company, L.L.C. -- William E. Conway, Jr. 
Orange Crimson Aviation, L.L.C. -- Daniel A. D’Aniello

How long before the DBD's are known by their private plane monikers, Falstaff-Westwind-Orange Crimson?

Sunday, March 2, 2014

Carlyle Group Monetizing China Before the Fall?

IFRAsia reported:

Less than a year after delisting from the US, Focus Media, the Chinese display advertising company, is already working on a return to the public equity markets, according to multiple sources familiar with its plans.

Focus Media, which delisted its Nasdaq shares in a leveraged buyout last May, is looking to complete a US$1bn Hong Kong IPO early next year. The deal might even arrive before the end of 2014, said one of the sources, potentially handing the firm’s private equity owners a swift return on their investment.

Does The Carlyle Group see the window for Chinese IPO's closing?   Here's a sign.  Carlyle and its partners already milked Focus Media for $500 million in a "debt for dividend" play.

The company’s owners have already received a US $500m payout through a dividend recapitalisation loan, after the company’s improving Ebitda allowed them to put more debt on the balance sheet barely six months later.

Six month dividend recapitalization and one year IPO?  So much for private equity underwriters (PEU's) being patient money.  There seems to be a rush to monetize.

Carlyle Group DBD's Should Refund Texas Taxpayers

All three Carlyle co-founders, known collectively by their initials (DBD), brought home $750 million between them last year.  That's more than enough to refund Texas taxpayers who gave $35 million to Carlyle for 3,000 new jobs that never appeared. From 2004 to 2010 Carlyle's Vought Aircraft Industries cut 35 jobs, making Governor Rick Perry's award a stunning $1 million per job lost.

The Perry distortion continues in his latest Texas Enterprise Fund report.  Vought's final 10-k filed under Carlyle ownership referred to the minor obligation for holding onto to $35 million in Texas taxpayer money for six years

We reclassified $0.9 million related to the Texas grant to the Accrued and Other Liabilities caption in our Consolidated Balance Sheet due to a repayment of grant funds in 2010 based on the agreement.

Perry's 2013 report shows a mere $6.9 million has been repaid after nearly a decade of holding Texas taxpayer money. recently reported:

Perry credits the tech fund and the Texas Enterprise Fund, which similarly gives companies taxpayer dollars to companies, as economic engines helping make Texas the envy of the nation in creating jobs. His office stresses taking a long view with inherently risky early-stage startups, and says job creation and outside funding attracted by companies are important performance measures.

Here's what they missed.  Governor Rick Perry is an embarrassment on several levels in his pandering to Carlyle's co-founders.

One, Perry knew fairly quickly during the six year time span that Vought would not locate Boeing 787 Dreamliner production in Texas, instead choosing South Caroline which gave $65 million.  It would seem fair if Texas lost the bidding war, our $35 million would be refunded.  That was not the case

Two, Governor Perry renegotiated the TEF deal prior to Carlyle's sale of Vought to Triumph.

Three, Perry has bald-face lied in his TEF report on the number of jobs created, choosing to offer the most absurd number of 29,377, instead of the actual number - 35 jobs lost as of 2010. 

Consider what Vought's CEO said in 2007:

To his disappointment, (Vought CEO Kyle) Doty added in an April 17 interview with the Dallas Business Journal, expanding in Dallas is unlikely, as are plans to buy the old Naval Air Station from the U.S. Navy. So a $35 million cash grant in 2004 from Gov. Rick Perry's Texas Enterprise Fund most likely will be repaid.  

Seven years later and Texas taxpayers await repayment.  It's Texas "Just Us," the heady world described by Representative Drew Darby, where politicians meet with captains of industry.  It's clear who Governor Perry serves and its not the public. 

Update 3-4-14:  Two of the three DBD's are selling a miniscule portion of their Carlyle stock.  Combined they'll rake in $85.6 million.  That's enough to refund Texas taxpayers and have $50 million left over.

Saturday, March 1, 2014

Baron's Spotlights Rubenstein's Philanthropy

Baron's joined the list of media sources jumping way down the philanthropy list to spotlight Carlyle Group co-founder David Rubenstein. 

It has a similar feel to employers endlessly pressing the money button to motivate workers.  Pay is usually far down the list of motivators, but it's the "go to" motivator for many leaders.

Oddly, Rubenstein's riches come from squeezing employees, cutting pay, benefits or their very positions.  Many a retirement has been spoiled by Rubenstein and his ilk and many more will be.