Carlyle Flees China Fishery Board

DealStreetAsia reported:

Private equity major Carlyle Group is no longer part of the board of Singapore-listed industrial fishing company, China Fishery Group. 

Carlyle had recently declined to take part in China Fishery Group’s rights issue, and this had led to the private equity firm’s stake in the fishing company being reduced to 6.2 per cent from 11.1 per cent earlier.

This development comes even as China Fishery is being investigated by the regulators – Monetary Authority of Singapore and white-collar crime busters Commercial Affairs Department – for an offence under the Securities and Futures Act. 

On August 21, shares of China Fishery Group, fell more than 50 per cent, after news broke that the company was under investigation in Singapore and Hong Kong. A recent Bloomberg report said the probe into China Fishery Group Ltd for a securities offense had wiped out some $600 million from group shares and its US currency bonds. 

China Fishery Group, in a regulatory filing on Monday said that Carlyle’s Patrick Siewert has stepped down as non-executive director of the company with effect from 29 August, 2015.

Carlyle's press release stated when the deal was struck in 2010:

"Carlyle’s strategic investment strengthens our shareholder base and further enhances our corporate governance and social responsibility practices. China Fishery is committed to managing its activities in a responsible and sustainable manner...  In addition to the new capital that will help fuel our expansion plans, China Fishery can also benefit from leveraging Carlyle’s extensive network, acquisition and financing expertise and strategic insights. With Carlyle’s guidance and contributions at the Board level, we look forward to taking China Fishery to greater heights and delivering sustainable growth in shareholder value.”

After more than five years of governance service Patrick Siewart fled the sinking ship's board.   We'll see how strategic a move it was should more information be revealed regarding the investigation.  Carlyle's good name must be maintained. 

Update 10-28-15:  Moody's downgraded China Fishery's debt.

Carlyle to Round Trip Landmark Aviation for Second Time

The Carlyle Group might get frequent seller points for putting Landmark Aviation on the selling block once again.  In 2007 Carlyle sold affiliates Landmark Aviation and Standard Aero to Dubai Aerospace for $1.8 billion.  Today Carlyle wants to move Landmark Aviation for $1.7 billion.

The quiet 2007 sale came between two public uproars over Dubai companies buying U.S. ports and the NASDAQ stock exchange.  Carlyle likes to monetize assets at top valuations.  The private jet set has had a great twenty year run.  One can only hope the winds turn and lift the finances of the little people at the expense of the greed and leverage boys.

My vision of Carlyle chiefs boarding their last Landmark owned flight has the attendant saying, "PEU class, step this way.  At your seat you'll notice a program for the World Economic Forum in Davos and a personal sized set of handcuffs and leg chains.  Let's hear some clicking boys."

Update 9-23-15:  Carlyle will get over $2 billion for Landmark from BBA Aviation   The deal merges the #1 FBO operator in the U.S. with Landmark at #3.  I expect the "Just Us" Department and Treasury (CFIUS) to do their usual PEU double stamp of approval. 

Malaysians Smell PEU

BBC reported:

Tens of thousands of Malaysians are protesting in the capital Kuala Lumpur and elsewhere, calling for Prime Minister Najib Razak to step down over a financial scandal. 

Protesters are angered by a $700m (£455m) payment made to his bank account from unnamed foreign donors. 

It was discovered last month during a probe into alleged mismanagement at the debt-laden state fund 1Malaysia Development Berhad (1MDB).

The article illuminated 1MDB:

What is 1MDB? 
• The 1Malaysia Development Berhad state investment fund was established under Prime Minister Najib Razak in 2009 to transform Malaysia into a high-income economy. 
• Critics say the fund overpaid for many of its investments and spent millions on fees to investment bank Goldman Sachs 
 • It began attracting attention at the end of 2014 when it started missing payments to creditors. It later emerged that the fund was mired in $11bn (£7bn) of debt. 
• Mr Najib has been accused of taking $700m from the fund - a charge which he has denied. 
 • Malaysia anti-corruption commission said it had verified that the money was a donation from unnamed foreign donors.

Malaysia's sovereign wealth fund started after the 2008 financial crisis. With the help of Goldman Sachs it took on $11 billion in debt.  The elected official who established the fund received $700 million from foreign donors yet to be identified.

No wonder masses hit the streets of Kuala Lumpur.  They're protesting the greed and leverage boys, which includes private equity underwriters, imitators like 1MDB and their sponsored politicians. 

Update 9-7-15:  Goldman's fee-a-palooza on 1MDB stinks to the average Malaysian.

Carlyle Buys Analytics Provider Novetta

Mergers+Acquisitions reported:

The Carlyle Group LP (Nasdaq: CG) has agreed to buy cybersecurity data firm Novetta from Arlington Capital Partners.

Arlington formed Novetta in 2012 when it merged portfolio companies White Oak Technologies and FGM Inc. Novetta provides cybersecurity data analytics for government agencies include the Department of Defense and the Department of Homeland Security.

Carlyle has long loved Uncle Sam's Treasury and is skilled at reading the tea leaves of government spending.

Carlyle Managing Director Julius Genachowski serves on President Obama's two intelligence boards, so he is in a unique position to see government intelligence needs and advise Carlyle's triumvirate to invest accordingly.  His bio on Carlyle's website stated:

Mr. Genachowski has long advised President Obama on technology issues. 

Julius could've made President Obama's intelligence tea.  That would be an investment sweet spot for a private equity underwriter (PEU).

Carlyle is making the investment out of the firm’s $13 billion Carlyle Partners VI fund. The firm made another software deal earlier this year when it announced plans to buy Symantec Corp.’s Veritas data storage business for $8 billion.

Uncle Sam must need kajillions of storage for its aim to monitor every citizen 24/7 and a Carlyle affiliate will do so for grand returns. 

The question is who Novetta will work for, the general public or the protection of American branded global greed and power class?  Novetta's first test could be finding out who really initiated Hunter Biden's Ashley Madison account.  

Update 9-24-15  Financing for Carlyle's Novetta deal is covenant lite.  

Biden Hunting on Ashley Madison?

Hunter Biden blamed Russian agents for setting up a fake Ashley Madison account in his name.  How the Russians did this from Biden's office at Georgetown University is unclear.  Biden's people have no comment.

Has anyone run the credit card number used to set up the account?  That might clear up who set up Hunter Biden's Ashley Madison account. 

Cobalt Energy Sells Contentious Angolan Offshore Oil Field

Carlyle Group affiliate Cobalt International Energy sold its equity interest in an Angolan offshore oil field to partner Sonangol.  Bloomberg's piece did not mention Cobalt's 2010 deal had two shady partners, which kicked off a SEC investigation.  Cobalt offered flimsy excuses for what was likely bribery.  Last year they defended the company by saying the two illicit groups are no longer partners in the deal.  Cobalt's SEC filing did not indicate what remuneration Angolan government officials received from transferring their 30% and 10% interests in the block. 

On August 26, 2014, we received documentation confirming that Nazaki Oil and Gaz ("Nazaki") and Alper Oil Limitada ("Alper") are no longer members of the contractor group of Blocks 9 and 21 offshore Angola. Pursuant to a series of Executive Decrees passed by the Republic of Angola, the working interests previously held by Nazaki and Alper in Blocks 9 and 21 have been transferred to and are now held by Sonangol P&P. As a result, we no longer have any relationship with Nazaki or Alper. The contractor groups for Blocks 9 and 21 offshore Angola now consist only of Sonangol P&P (60% working interest) and the Company (40% working interest). Our obligation to carry and pay for Alper's 10% working interest terminated immediately with the transfer of Alper's interest to Sonangol P&P pursuant to the terms of our 2010 agreements with Alper. 

The Carlyle Group's recent SEC filing shows a 35 million share stake in Cobalt International Energy.  The illicit partnership is gone as is Cobalt's equity interest in Angolan offshore oil fields.  Will Obama's SEC consider this cleaned up?  Highly likely.  

Pensions Exiting Claren Road

Texas and California pension funds have or will redeem their investment in The Carlyle Group's Claren Road hedge fund, according to Pensions&Investments.  North Carolina and Illinois pensions are closely monitoring the situation for possible withdrawals.

SeekingAlpha reported "Carlyle will write off up to $175M of the remaining $216M value of Claren Road still on its books.  The fund's managers are hearing from exiting investors and are in the process of deciding on a future path, including maybe shutting the doors."  Claren Road may be one crowded exit. 

Carlyle Hedge Fund Claren Road Could Roll Up

FT reported:

The Carlyle Group is considering shutting its $4bn credit hedge fund Claren Road after investors asked to pull almost half of their money out.

Last September the fund was managing $8.5bn, its peak level, underscoring how quickly outside investors — and the influential consulting firms who advise them — can turn against an underperforming fund.
Investors submitted redemption requests totaling $1.97bn, or 48 per cent of the fund’s assets of $4.1bn at the end of July.

The fund will be down to $2.1bn at the end of September, when it has to honour the latest redemptions, and investors will have another chance to call for their money back in November.

Investors may want to remember Carlyle's BlueWave Partners hedge fund which failed six months before the financial crisis.  Then again, they may not.

Update 8-19-15:  Leverage is a two edged sword.   KKR found it cuts to the bone when bets go the wrong way.

KKR's PEU Bankruptcy: Samson Resources

Bloomberg reported KKR, Crestview Partner and NGP Energy will likely turn over Samson Resources to a different set of private equity underwriters, debt holders SilverPoint Capital and Cerebus, beating out a third group of PEU's Blackstone, Oaktree, GSO Capital and Centerbridge Partners. 

KKR led a group that bought Tulsa, Oklahoma-based Samson in a 2011 leveraged buyout valued at close to $7.9 billion including fees and reimbursed capital expenses. The sponsors, which included Crestview Partners and NGP Energy Capital Management, invested $4.1 billion of equity in the deal, according to company filings.

Where's The Carlyle Group, given co-founder David Rubenstein's repeatedly beating the drum on energy investing?   I thought they might have a stake in Samson via Carlyle's deal with NGP, but that culminated after KKR and company bought out Samson. Carlyle's deal with NGP was announced at the end of 2012.

“They are a spectacular fit with us,” Youngkin said of NGP. “They’re primarily North American-focused and they’re investing right into the teeth of the big exploration and production developments over the last five to eight years -- shale, tight oil, all the big trends.” 

Surely they put some money to work before fall 2014 when oil prices plunged.  It will be interesting to see how that works out, given Carlyle's bath on Vermillion, an energy commodities hedge fund that fell from over $2 billion to $50 million.

Back to Samson's current PEU owners facing a complete loss of equity:  This is how Samson explained their 75% owners in its $2.25 billion debt prospectus in 2012:

Samson Aggregator L.P. is a limited partnership in which investment funds associated with Kohlberg Kravis Roberts & Co. L.P., including KKR Samson Investors L.P., and other co-investors, including Crestview Partners II, L.P. and Natural Gas Partners IX, L.P., own the limited partner interests. Samson Aggregator GP LLC is the general partner of Samson Aggregator L.P. KKR Samson Investors GP LLC is the general partner of KKR Samson Investors L.P. KKR Samson Investors L.P. is a limited partnership in which Samson Co-Invest I LP, Samson Co-Invest II LP, Samson Co-Invest III LP, KKR 2006 Fund (Samson) L.P., 8 North America Investor L.P., KKR Financial Holdings III, LLC, KKR Fund Holdings L.P., KKR Management Holdings L.P., KKR Partners III, L.P., KKR SA Investors Co-Invest Fund L.P., Lion Rock Energy Investor L.P. and OPERF Co-Investment LLC own the limited partner interests. Samson Co-Invest GP LLC is the general partner of each of Samson Co-Invest I LP, Samson Co-Invest II LP and Samson Co-Invest III LP. KKR Fund Holdings L.P. is the sole member of Samson Co-Invest GP LLC. KKR 2006 Fund (Samson) L.P. is the sole member of KKR Samson Investors GP LLC. KKR Associates 2006 L.P. is the general partner of KKR 2006 Fund (Samson) L.P. KKR 2006 GP LLC is the general partner of KKR Associates 2006 L.P. KKR Fund Holdings L.P. is the designated member of KKR 2006 GP LLC. KKR Fund Holdings GP Limited is a general partner of KKR Fund Holdings L.P. KKR Group Holdings L.P. is a general partner of KKR Fund Holdings L.P. and the sole shareholder of KKR Fund Holdings GP Limited. KKR Group Limited is the sole general partner of KKR Group Holdings L.P. KKR & Co. L.P. is the sole shareholder of KKR Group Limited. KKR Management LLC is the sole general partner of KKR & Co. L.P. Henry R. Kravis and George R. Roberts are the designated members of KKR Management LLC. In addition, Messrs. Kravis and Roberts have been designated as managers of KKR 2006 GP LLC by KKR Fund Holdings L.P. In such capacities, each of the aforementioned entities and individuals may be deemed to have voting and dispositive power with respect to the shares held by Samson Aggregator L.P. but each such entity and individual disclaims beneficial ownership of the shares held by Samson Aggregator L.P. The address of each of the entities listed in this footnote is c/o Kohlberg Kravis Roberts & Co. L.P., 9 West 57th Street, New York, New York 10019. 

This group planned to delever Samson in line with debt covenants.

The modified debt to Adjusted EBITDA covenant requires a ratio of no more than 5.75x for the remainder of 2012 and 2013, 5.5x for 2014, 5.0x for 2015 and 4.5x for 2016. 

Obviously that did not happen. Samson will go from the hands of PEU equity holders to PEU debt holders. 

Update 8-16-15:  WSJ reported "Meanwhile, the 44-year-old, formerly family-owned company, which had nearly enough cash on-hand to pay off its $695 million in debt before the buyout, was left with $3.6 billion in debt on its books after the deal."

What Excuse Will PEU's Offer to Protect Carried Interest Taxation?

NakedCapitalism reported two bills have been introduced to address private equity underwriters' preferred interest taxation.  Senate Bill 1686 and House Bill 2889 both carry the title of Carried Interest Fairness Act of 2015.  This battle has been fought many times.  It ends with victory by Carlyle co-founder David Rubenstein and Blackstone's Stephen Schwarzman.

Harken back to 2007 when private equity underwriters wrapped themselves in the banner of disadvantaged minorities.The Treasury Department characterized on of those disadvantaged minorities as a billionaire entrepreneur.  The PEU lobby won in 2007 and every year since.

Consider this take from a former major league business reporter from July 2011:

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!

Last month Dealbook joined with Rubenstein's disdain on raising preferred carried interest taxation calling any change "petty and vindictive."  Dealbook said it would only raise $18 billion over ten years.  That's $4 billion lower than Rubenstein's 2011 number.  Has private equity become less profitable or have they become better at sheltering their profits by offshoring and other means? 

America's corporate owned and PEU sponsored Congress will not change carried interest taxation.  It will be interesting to see how the PEU lobby justifies what most Americans see as patently unfair.  The Private Equity Growth Capital Council (PEGCC) lost their chief lobbyist Steve Judge.  I've offered a new name for the organization Private Equity Capital Knowledge Executed Responsibly (PECKER), but they haven't embraced this change. 

In 2007 The Carlyle Group managed $35 billion in assets.  Today it's $193 billion.  I'll wager David Rubenstein and Stephen Schwarzman win again. 

Carlyle's Rubenstein: Buy (Our) Carbon Related Energy Asset Which is No Longer for Sale

CNBC reported:

Philanthropist and billionaire private equity professional David Rubenstein has told CNBC that oil prices will bounce back over time and will make carbon-related energy assets one the best additions to any investor's portfolio.

"In time (oil) prices will come back, in time demand will catch up with supply, and in time I do believe that carbon-related energy will turn out to be one of the best investments in the world," he told CNBC Tuesday.

It just so happens Carlyle had a carbon related energy asset ready to go public on Thursday, August 6th..  Philly.com reported:

Three years after a brush with extinction, the former Sunoco refinery in South Philadelphia has increased dramatically in value under new owners and could be worth more than $1 billion.

The private-equity firm Carlyle Group, which rescued the refinery in 2012 in a joint venture with Sunoco, on Thursday is launching an initial public offering of Philadelphia Energy Solutions Inc. on the New York Stock Exchange. The $250 million IPO would value the underlying refinery enterprise at $1.3 billion, if PES shares launch at $16.50.

Investors did not buy Rubenstein's sales talk as Carlyle postponed its PES IPO, calling into question the Carlyle Group's reputation for investment timing.  .

Oil majors and U.S. shale producers have been hit hard by a dramatic fall in the price of oil since mid-June last year. Brent crude and WTI have recently dipped back below the $50 a barrel level after a brief rally in the second quarter of 2015. 

Throughout this period, Rubenstein has maintained his optimism, however, and told CNBC that he was "finding assets that are now for sale at much lower prices."

Wolf Street reported:

A few weeks ago, Fitch Ratings raised its high-yield default outlook for 2015 from a range of 1.5%-2% to a range of 2.5%-3%. For energy companies, it expected the default rate to jump to “the 6%-7% range.” The overall default rate would increase further in 2016.

Rubenstein didn't clarify Carlyle's preferred method for gaining control over ever declining carbon related assets. Watch to see how many Carlyle buys straight up with equity and how many come via a back door debt default.

Dutch Pension Fund Saw Carlyle's Fees from the Inside at AlpInvest

Naked Capitalism reported:

The Wall Street Journal broke a story that is guaranteed to rock the private equity industry. The giant Dutch pension fund PGGM, which manages over $200 billion in the form of the retirement assets of social workers and nurses, has said it will stop investing in private equity funds that refuse to make full disclosure of all fees and costs. 

Despite being less than a household name in the US, PGGM is a large and influential private equity investor.

PGGM sold AlpInvest to Carlyle in two stages.

AlpInvest Partners has been investing mainly on behalf of its major clients APG and PGGM Investments, asset managers for two large Dutch pension funds. In 2011, APG and PGGM transferred the ownership of the management company to The Carlyle Group and AlpInvest management. Effective August 1, 2013, Carlyle acquired the remaining interest in AlpInvest from AlpInvest's senior management. APG and PGGM will continue to be amongst our most important investors. 

Bloomberg reported on the 2013 deal that gave Carlyle 100% of AlpInvest:

AlpInvest, which oversees 37 billion euros ($48 billion) invested in private-equity funds and other deals, is part of Carlyle’s Solutions business.  

Whether PGGM remains one of Carlyle and AlpInvest's most important investors will hinge on full fee disclosure. I'll venture PGGM saw plenty regarding Carlyle's fee structure through their additional $10 billion in AlpInvest investments.   

Naked Capitalism wrote:

PGGM isn’t simply responding to these new requirements. It’s putting the entire private equity fee-gouging regime in its crosshairs, and demanding that fees bear a reasonable relationship to costs. Europeans, who don’t hold financial buccaneers in high esteem, do not regard private equity multi-million dollar pay packages as reasonable costs that they should have to support.

Most of the money that PGGM manages is on behalf of the PFZW pension fund. More than half of PFZW’s €811 million fee bill in 2014 went to private equity. Yet private equity only accounts for 5.6% of PFZW’s €162 billion of assets.

That's a ten bagger fee wise for the PEU boys.  PGGM appeared to have learned from their interaction with Carlyle, as opposed to CalPERS, which held an equity stake in The Carlyle Group for over a decade. 

Carlyle Group's Zodiac Bankruptcy While Awash in Dry Powder

The Carlyle Group has a record amount of dry powder, uninvested capital waiting to be deployed.  Business Insider reported:

Carlyle Group is sitting on a mountain of cash. It said it was holding $62.8 billion in "dry powder" — money it has raised but hasn't yet spent.

WSJ reported on July 31, 2014:

Zodiac Pool Solutions SAS, the Paris-based swimming pool and spa manufacturer, filed Thursday for bankruptcy protection in the U.S. as part of its debt-restructuring effort now under way in the U.K.

Formerly known as Zodiac Marine & Pool, Zodiac Pool filed for protection under Chapter 15—the section of the Bankruptcy Code that deals with international insolvencies—in U.S. Bankruptcy Court in Wilmington, Del.

In 2007, Washington-based private-equity firm Carlyle Group LP bought Zodiac and then merged its WaterPik business into the company. Carlyle later split off Zodiac's aerospace division form the pool maker.

The company, which has more than $1.3 billion in debt, ran into financial trouble in 2008 and has been closing facilities and selling assets, including it WaterPik and boat businesses, to stay afloat. But those efforts haven't been enough to refinance a big chunk of debt coming due in the next 14 months.

In 2014 Carlyle wouldn't put a penny of its $25 billion in PEU dry powder to meeting its financial commitments to Zodiac Pool's creditors.  Contrast that with the government and courts' treatment of citizens with student loan debt.

Update 8-9-15:   A hospice patient was arrested for being delinquent on his court costs.  Hospice patients have a prognosis of six months or less.  In order to get this gentleman's $350 in late court fees, authorities had to pay two days of hospitalization and the salaries of two officers to stand guard.  Rich people can welsh on their debts.  Ask Republican Presidential hopeful Donald Trump, who used bankruptcy more than once to improve his companies' profit position.   Poor people have to pay, no matter what.

Texas AG Faces Indictment for Securities Fraud

Chron reported:

Attorney General Ken Paxton is expected to surrender to authorities Monday following an indictment on multiple felony charges stemming from his involvement with a North Texas technology company accused of defrauding investors, according to multiple sources close to the case.

A Collin County grand jury issued the indictment against the first-term attorney general on Tuesday, two sources who had been briefed on the proceedings told the Chronicle on Saturday.

Paxton faces two counts of first-degree securities fraud and one count of third-degree securities fraud, with the most serious charges carrying a minimum sentence of five years in prison, special prosecutor Kent Schaffer told The New York Times.

Schaffer said Paxton is accused of encouraging people, including current and former members of the Legislature, to invest more than $600,000 in a McKinney-based technology company called Servergy without telling them he was making a commission. He also misrepresented himself as an investor in the company that the U.S. Securities and Exchange Commission was investigating for defrauding stockholders as recently as December 2014. The first-degree charges each carry a sentence of five to 99 years in prison and a fine of not more than $10,000.

The third-degree charge stems from his failure to properly register with the state as an investment adviser representative, which carries a sentence of two to 10 years in prison, as well as a $10,000 fine.

Wow,  this speaks to the abysmal level of leadership in both business and politics.  They serve themselves at nearly every turn. 

Huffington's Solace: Rubenstein & Conway's $30 Million in Vermillion

The Carlyle Group lost several investments in Spring 2008 prior to the Fall financial crisis.  Carlyle Capital Corporation's failure resulted in a high profile investor suing Carlyle and its marketing co-founder.  Forbes reported:

Michael Huffington, the wealthy former Republican congressman from California, is suing the Carlyle Group and its co-founder, David Rubenstein, over misrepresentations and deceptions Huffington claims they made regarding his $20 million investment loss in Carlyle Capital Corp., Carlyle’s failed publicly traded mortgage fund.

Seven years after Carlyle Capital Corporation declared bankruptcy, Carlyle associated hedge funds have suffered massive losses and redemptions.  WSJ reported:

Two of Carlyle’s co-founders, David Rubenstein and William Conway, invested their own money in the firm to the tune of $30 million, according to a person with knowledge of its operations, and kept it there even amid the losses and redemptions from other investors. The current value of their stakes is unknown. 

I hope it's $30 million each for Michael Huffington's peace of mind.

Vermillion had $2.2 billion under management at the time of the Carlyle acquisition; its assets in the legacy flagship, metals and freight funds have fallen to just over $400 million since then, though the new strategies in lending and index products have added about $1 billion. The firm’s total assets under management now stand at $1.4 billion.

Carlyle's commodity hedge fund wilted from $3.2 billion to $1.4 billion. That a 56% haircut. Huffington's $20 million Carlyle investment turned into a 100% loss.  Might he find justice or solace in Rubenstein and Conway taking a hit to their personal pocketbook? 

If not, justice may be served by the Royal Court of Guernsey in a case brought by Carlyle Capital Corporation's liquidators:

The Court has set the case schedule and trial is scheduled for the first available date after February 1, 2016.

Carlyle has a pattern of settling cases so it does not have to reveal its PEU secrets in any court.  We'll see how that and Carlyle's hedge fund investments hold up.