The Carlyle Group invested $175 million in 2012 for for two-thirds of Philadelphia Energy Solutions (PES). The deal received public subsidies and Carlyle did a liquidity recap, loaded PES with debt to siphon off dividends. Reuters reported:
The refinery owners enjoyed a taxpayer-funded rescue package, which included the creation of a tax-friendly zone, $25 million in grants and environmental liability waivers.The company took on the $550 million loan that comes due early next year in 2013 to finish capital projects and pay out dividends to Carlyle and Sunoco.The payouts and tax advances reached $480.9 million between 2013 and 2015, according to filings.
Now Carlyle wants to restructure the company with someone else's money. Insiders say Carlyle hired an investment bank to help tackle PES' debt burden.
Carlyle has been a big investor in energy and has loads of dry powder but it will not throw good money after bad, especially for an investment that has already returned a multiple of its initial equity position.
Public subsidy, debt for dividend, and preferred taxation are all common private equity underwriter (PEU)strategies. Carlyle is skilled at executing the first two and keeping the latter. Carried interest taxation remains soundly in place a decade after our PEU sponsored Congress first considered removing the billionaire tax break. Mr. Rubenstein went to Capital Hill many times to keep his preferred taxation. He got his way as politicians Red and Blue love PEU.
