Davos Ends with Saudi Luncheon, Billionaire Prince Freed

CNBC reported Saudi Arabia is open for private infrastructure investment.  That was one message at the World Economic Forum in Davos, Switzerland.

Vision 2030 is being overseen by Saudi Crown Prince Mohammed bin Salman and centers on three main themes to build a "a vibrant society, a thriving economy and an ambitious nation." A key part of the vision is to increase private investment and the growth of the private sector, which Saudi Arabia hopes will contribute 65 percent of gross domestic product (GDP) by 2030.

Saudi Transport Minister sold the investment opportunities to the Western billionaire class at Davos:

"We have long-term public/private partnership (PPP) concessions that are in play. We are looking at restructuring some of our airports as well, allowing them to be privatized and then the big one is railroading."

Over the last thirty years Davos' billionaire boys railroaded the U.S. economy to their extreme advantage, courtesy of America's Red and Blue political parties.

Billionaires don't invest if their money could be arbitrarily appropriated.  Thus it became important for the new Saudi Crown Prince to release the Royal Family's most Western oriented billionaire.  As Davos closed Prince Alaweed bin Talal gave an interview to Reuters.

The Prince described his three month detention with no word to the outside world as a misunderstanding and he was simply involved in discussions.  His obvious weight loss was due to a vegan diet.

At least the Davos crowd fattened up on Saudi cuisine, sponsored by the MiSK Foundation--Saudi Crown Prince Mohammed bin Salam's effort to engage Saudi youth.

It sponsored the MiSK Global Forum late last year, the biggest youth event in the Middle East.  Disrupt to stabilize is the mantra of Davos' billionaire class.  It appears the Saudis plan to teach their youth PEU ways.

Update 2-10-18:  UK's DailyMail says the Prince's release was a PR stunt in response to a BBC documentary.

Update 2-11-18:  The Riyadh Ritz Carlton reopened for business.  The public is once again invited to book rooms at the luxury hotel.  This should please the Davos boys.

Update 3-10-18:  Western oriented Billionaire Prince Alaweed bin Talal has been banned from giving interviews.  Disrupted, now silenced.

Update 9-30-18:  ArabNews reported on the Crown Prince's PEU effort at Davos earlier this year.

Update 12-4-18:  U.S. Senators heard evidence of the Crown Prince's ordering the murder of a Saudi journalist.

Update 12-28-18:  McKinsey abandoned a Saudi partner who is yet to be released from the Crown Prince's abusive shakedown. 

Update 10-9-21:   The Khashoggi murder is such old news that the man behind the execution is being promoted for his public service by Crown Prince bin Salman.  Further evidence that Khashoggi's brutal killing is in the rear view mirror came from bin Salman led Saudi Public Investment Fund's purchase of Newcastle United.

Update 12-6-22:   The U.S. court case against the Crown Prince was dismissed under the guise of sovereign immunity, something the Prince did not have at the time of the execution.  The judge said his hands were tied by the Biden administration's recommendation to the court.  Thugs win.

Rubenstein Sees PEU World at Davos

Carlyle Group co-founder David Rubenstein spoke to a WSJ reporter at the World Economic Forum meeting in Davos, Switzerland.  Rubestein predicted workers will not get much from the Trump tax cuts.  Executives, investors and corporate raiders will be the big winners of the current sweet spot economy.  Rubenstein founded Carlyle, a private equity underwriter (PEU), in 1987.

Rubenstein served on a panel alongside former cousin-in-law Kenneth Rogoff.  Harvard Economics Professor Rogoff expressed his concern:

"If interest rates go up even modestly, halfway to their normal level, you will see a collapse in the stock market.”

There will be a spinoff impact on PEU affiliates:

Higher rates will also affect the $5 trillion burden of dollar-denominated debt held by emerging-market companies.

Carlyle lost ManorCare and Philadelphia Energy Solutions to bankruptcy.  How much of the predicted deal activity will be back door takeovers?

Update 1-27-2018:  AmericanConservative called out Davos for what it is, crony capitalism on steroids.

Update 1-29-18:  ZeroHedge reported the Davos' billionaire boys heard a voice crying "income inequality."  That's been a World Economic Forum meme.  For some reason they can do deals but can't make advances in this arena. Companies can take tax cut proceeds and not give a penny to workers. 80% plan to do just that.

Update 2-18-18:  Worker wages are up a penny an hour from last year. Stock buybacks for 2018 are set for a new record.

Update  2-22-18:  WSJ asks "how gargantuan can private equity get?"  In our PEU world politicians Red and Blue love PEU... 

Update 3-18-18:  WEF caters to CEOs whose pay continues to accelerate. 

PES Sinks Under Debt Funded Dividends to PEU Parent Carlyle Group

Reuters reported:

Philadelphia Energy Solutions LLC, the owner of the largest U.S. East Coast oil refining complex, announced to its employees on Sunday that it plans to file for Chapter 11 bankruptcy.

PES is owned by The Carlyle Group and Energy Transfer Partners-Sunoco Logistics.

Carlyle put up $175 million in 2012 in exchange for two-thirds of the new company and full responsibility for day-to-day operations.

Carlyle mined debt funded cash from PES and did so more than once:

About $121 million of the loan proceeds were paid as distributions to Carlyle and to ETP. The loan also funded a $25 million payment to preferred unit holders at Carlyle.

Expecting a boost in cash from an IPO, Carlyle, ETP and other smaller investors took out an additional $260 million in payouts in 2015, regulatory filings show.

Moody's downgraded the company's debt in November 2017, saying:

The downgrade of Philadelphia Energy Solutions R&M's ratings reflects the very high risk of default on PESRM's term loan that matures in April 2018.

 Reuter's reported Moody's warning in April 2016.

Moody’s Investors Service warned  that “additional aggressive distributions” to Carlyle and ETP posed a risk to the company’s B1 credit rating. 

Somehow Carlyle retained a stake in PES despite operating it into bankruptcy.

Following an agreement with its creditors, the company has secured access to $260 million in new financing, and said it expected the bankruptcy filing to have no immediate impact on its employees.

The $260 million in financing secured by the company involves $120 million in debtor-in-possession and exit financing, $75 million in additional capital from Sunoco Logistics, and a $65 million equity investment from the company’s shareholders, led by Carlyle along with the refiner’s management. 

The Carlyle Group made money off PES.  It made an initial equity investment of $175 million.   Carlyle received $105.5 million in 2013 plus $173.2 million in 2015.  That's $278.7 million cash, well above the private equity underwriters' initial investment.

Carlyle was up over $100 million when PES' operator declared the company bankrupt.  The timing is good for an enterprising reporter to ask Carlyle co-founder David Rubenstein about this development.  Davos happens this week where Mr. Rubenstein will present twice.

Rubenstein will also meet with India's Prime Minister Modi.  It's unlikely he will mention PES's or ManorCare's bankruptcies under Carlyle ownership.

Update 1-24-18:  Fresh off the implosion of affiliate PES Carlyle Group co-founder David Rubenstein warned against too much debt (leverage) and geopolitical surprises.

Update 2-21-18:  Reuters noticed Carlyle's mining of PES cash over the years, i.e. what PEUReported.  Reuters stated "The Carlyle-led consortium collected at least $594 million in cash distributions from PES before it collapsed."

Update 3-19-18:  SeekingAlpha added its take on PES bankruptcy under Carlyle.

Update 5-30-18:  Carlyle yanked its Varo Energy IPO in April.  Investors might've remembered what Carlyle did to PES.  Interest was sorely lacking according to FT.

Davos the Epitome of Western Corporate Greed

For whom has the world improved?  The global billionaire corporate class that sponsors the World Economic Forum.  Consider the state of the average worker:

"the average American worker has not been paid more since 1974 for an hour’s work."

That's 44 years with stagnant worker wages.  The World Economic Forum started in 1970.  It became the must attend meeting for Western corporate chiefs and sponsored politicians. 

“We are seeing a flowering of corporatism where government is designed to maximize the opportunities of giant influential companies and industries that spend a lot of money lobbying,” he said. “We continue down that primrose path today with yet another cycle of deregulating designed to help corporations.”

The irony is that voter push back against self-serving politicians got Donald Trump the White House, which he is using to enrich his personal empire.

In promoting their 2018 event the World Economic Forum stated:

"Citizens yearn for responsive leadership; yet, a collective purpose remains elusive despite ever-expanding social networks. All the while, the social contract between states and their citizens continues to erode."

And the billionaire boys at Davos will ensure it continues to erode.

Update 1-22-18:  The billionaire boys took home 82% of all new wealth in 2017.  The bottom half took home nothing, nada, zip.   WEF sponsors have been supremely successful.  The Billionaire Boys Club lobs softball questions to make members look good.

Update 1-24-18:  Goldman Sach's Lloyd Blankfein said President Trump has gone "out of his way to be very, very supportive of the system."  That makes the billionaire boys in Davos very happy.

PEU Speakers at Davos 2018

Private equity headliners at the World Economic Forum in Davos, Switzerland are familiar faces.  Blackstone Group founder Stephen Schwarzman will speak on "Building Saudi Arabia's Future Economy."

One bullet point is "new opportunities for investment."  Will Stephen speak on the plight of detained Prince Alwaleed bin Talal, currently held in a high security prison?  Oddly, Carlyle's David Rubenstein made big money off the Prince in the early 1990's.

Schwarzman will also address "Global Markets in a Fractured World" alongside the former CFO of The Carlyle Group.

Carlyle Group co-founder David Rubenstein will talk about "The Next Financial Crisis" alongside former brother-in-law Kenneth Rogoff.  Rubenstein will also moderate a discussion on retail supply chain innovation.  Will Rubenstein have on Supreme street-wear and Golden Goose Deluxe sneakers?  He is ever the salesman.

Global Technology Partners' Ashton Carter will address "Future Shocks:  Cyberwar without Rules."

Generation Investment Management's Al Gore will revisit climate change in a session titled "Responding to Extreme Environmental Risks", "Stepping Up Climate Action." and "Climate's Two Degrees of Separation."  Former Vice President Gore didn't make the "How Do We Stop Sexual Harassment" panel.

The World Economic Forum is a symbol of greed and accumulation of power/influence which broke a number of societies over the last few decades.  That private equity underwriters (PEU) are advising the reformation of Saudi Arabia is darkly comedic. 

Saudis Going to Davos, bin Talal Lands in High Security Prison

Saudi Prince Alaweed bin Talal has been transferred to a high security Al Ha'ir prison.  News report indicates Prince Alwaleed's leverage to demand a trial or negotiate a deal is "dwindling by the day."

Trial by jury used to be important to our federal republic and a key feature of international expectations.  It's clear strong counter-puncher President Donald Trump will not intervene on the Prince's behalf.

The Saudis will send a delegation to the 2018 World Economic Forum in Davos, Switzerland.  ArabNews reported:

Saudi Arabia has accepted an invitation on behalf of senior policymakers, in addition to official WEF partners like Saudi Aramco and Saudi Basic Industries Corporation (SABIC).

In addition to placing bin Talal in a high security prison the Saudi government has taken over BinLaden Group, the country's largest construction company.

Holding people without trial and seizing family owned corporate assets should be important to a group concerned about economic fairness and justice.  The Davos boys have long been a club that enriched one another.  Few high profile people have spoken out on Prince Alaweed bin Talal's behalf.

If Davos is true to form attendees will cater to louts who can push money their way, ignoring how such leaders flout basic civil liberties. 

Update 12-28-18:  McKinsey abandoned a Saudi partner who is yet to be released from the Crown Prince's abusive shakedown.

Trump's Billionaires Boys to Club at Davos

President Donald Trump's economic team will join him in Davos, Switzerland for the annual World Economic Forum meeting.  Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross will chaperone America's petulant President/Commander in Chief.

Here's what CNBC had to say about Ross in 2014:

Billionaire vulture investor Wilbur Ross knows a crisis when he sees one. He likes to buy stuff when a crisis becomes more like desperation. And he's really good at it. That's why he's rich.

Half billionaire Steven Mnuchin earned the nicknamed “foreclosure king” for purchasing distressed mortgages during the financial crisis and evicting thousands of homeowners.

The last time Trump's billionaire boys hung out with their peers was the Milken Global Conference, sometimes called "Davos with better weather."

Might Trump express his gratitude given the Davos boys created the fertile conditions that got him elected?  The Clinton Global Meeting grew to Davos like stature, a place to rub elbows and push money around to friends.

There's irony in Trump is attending the very meeting he slammed as a Presidential candidate, more proof that election promises stay with the campaign. Both the Red and Blue political teams do it.

Energy Secretary Rick Perry attended Davos in as Texas Governor.  Governor Perry gifted The Carlyle Group's Vought Aircraft with $35 million.  Rather than create 3,000 new jobs Carlyle cut 35 positions.  Perry gave Carlyle $1 million per job eliminated over a six year period.

Those who aren't yet in the billionaire class, serve the billionaire class.  Trump's team will be in Davos to serve the uber-rich.  

Carlyle Group Writes Down 93.5% of China Fishery

FT reported

The Carlyle Group, the private equity firm that spent $186.6m on a minority stake in China Fishery in 2010, has reduced the valuation of its own investment to $12m, according to documents it has sent investors. 

That's nearly a 94% asset write down.   Debt can become worthless when the asset base evaporates.

One private equity executive in Hong Kong describes the group’s finances as “a spaghetti structure”. His company looked at buying China Fishery last year before deciding that the debt burden was too heavy. “It is difficult to sort out the inter-company loans, there is a lot of debt at every level and the [value of its] hard assets are low compared to the level of borrowing, which is insane,” he says. “Why would anyone underwrite that much debt?”

That's a question for Carlyle and our PEU economy.  It's interesting to hear a private equity executive criticize his industry's business model.  How often do the greed and leverage boys accuse one another of excess?

Two Weeks to Davos, Where Billionaires Yearn

The World Economic Forum Annual Meeting will reconvene in Davos, Switzerland on January 23rd.

Socially, citizens yearn for responsive leadership; yet, a collective purpose remains elusive despite ever-expanding social networks. All the while, the social contract between states and their citizens continues to erode.

Translated:  Leaders don't listen to the people they supposedly serve.  Instead they focus on the needs of their super rich donors who are likely to employ them post public service.  The eroding social contract makes citizens fearful and angry, especially as nearly all economic gains have gone to the wealthy and uber wealthy.  Davos is a gathering of these two groups, political leaders and the super rich, many of whom are corporate chiefs.  That's the group that refused to raise their hands when asked if they would use the tax cut to increase worker pay. 

Davos 2018 has the following plans:

We can shape the future by joining this unparalleled global effort in co-design, co-creation and collaboration. 

The Davos crowd co-designed a political system that only listens to money.  They co-created a world that caters to billionaires and their needs to have more.  They fractured the world over the last two decades.  The public just began to notice on a widespread scale what the greed and leverage boys have accomplished.

Do you trust the group that employed greed to fracture the world to repair their damage?  It looks like a Gary Cohn gathering, most of you have your hands down.

Update 1-9-18:  President Trump will attend Davos.  Might Trump express his gratitude given the Davos boys created the fertile conditions that got him elected.  The Clinton Global Meeting grew to Davos like stature, a place to rub elbows and push money around to friends.  The irony is Trump is attending the very meeting he slammed as a Presidential candidate.  More proof that election promises stay with the campaign. 

Carlyle Backdoors Bis Industries

The Carlyle Group used discounted debt to take over Australian Bis Industries.  Their press release stated:

The Carlyle Group built its position in the senior bank debt of Bis over the course of a year to become one of Bis’ largest senior secured creditors and played a key role in implementing a comprehensive restructuring. In total, senior secured creditors (including Carlyle and Värde Partners) own 96% of the shares in Bis.

Carlyle pushed out KKR by purchasing deeply discounted debt.  It turned the cheap debt into an equity position.  

The Carlyle Group struggles to hold on to ManorCare, which is way behind on paying its creditors.  Centerbridge Partners provided ManorCare a $550 million line of credit which is keeping Carlyle's ownership in place.  Carlyle partnered with Centerbridge to make a mint from BankUnited, courtesy of a multi-billion subsidy from Sheila Bair's FDIC.  

At the end of 2017 Morgan Stanley Wealth Management held no, as in zero junk bonds, the debt used to fund private equity buyouts.  Leverage is a tool that makes big money when valuations expand.  It is an equity eliminator when valuations plummet.    

The Carlyle Group just closed a $800 million CLO fund which invests in packaged corporate debt.  I expect Carlyle will take over more distressed companies via backdoor debt, as it did to Brintons' and Mrs. Fields.  The Brintons' founding family can commiserate with KKR as having been taken over from PEU Trojan debt.  

Billionaires need to make more money.  The manner does not matter. 

PEU Good Times Roll

Reuters reported:

The global private equity industry raised a record $453 billion from investors in 2017, leaving it with more than $1 trillion to pour into companies and new business ventures, data from industry tracker Preqin showed on Thursday. 

Private equity underwriters (PEU) had their best fundraising year since 2007 when the greed and leverage boys raised $414 billion.  That year saw PEUs doing club deals to reduce bidding and using risky debt to buyout companies.

In July 2007 CNN Money reported:

Investors are starting to shy away from risky debt, raising worries that some of the biggest deals will have trouble securing financing. Congress is muscling ahead with tax rules on private equity, and interest rates are ticking higher around the world.

Congress never muscled private equity in 2007.  Instead the House and Senate catered to billionaire PEU founders after they descended on Capital Hill.  In 2010 Carlyle Group co-founder David Rubenstein was reported to say at the Washington Economic Club, when Congress took another run at eliminating preferred PEU taxation:

“That was a senator. That one call just saved us on carried interest.”

Back to summer 2007, when comments included:

But while market conditions are starting to wobble, activity has not waned. "The bubble isn't bursting, a little air is just being taken out of an inflated balloon." 

Some expect the turbulence in the credit market to be short lived. "There's growing risk aversion and the market is going through a reality check. But there don't seem to be any major cracks in the system and the markets aren't dramatically different than they were a few weeks ago."  

Carlyle Capital Corporation's balloon burst in March 2008, when it declared bankruptcy.  It was a harbinger of the much wider economic crisis that bomb cycloned in September 2008.

2018 finds Morgan Stanley Wealth Management exited its corporate junk bond position, the very debt PEUs use to fund buyouts.

Credit crisis explode when the big money boys no longer trust one another to make good on their debt.  If history is a guide such a crisis could occur within a year to fifteen months.

Update 1-6-18:  ZeroHedge report stock allocations are approaching Dot Com levels

Junk Bonds at PEU Top?

Trouble starts when the big money boys no longer trust each other to make good on their debts.  Morgan Stanley Wealth Management indicated that this phenomenon could be approaching with its exit of junk bonds:

We recently took our remaining high yield positions to zero as we prepare for deterioration in lower-quality earnings in the U.S. led by lower operating margins.”

Private equity underwriters float junk bonds to fund buyouts.  When PEU affiliates fail they end up in the hands of bondholders.  Ironically, this opens the door for an affiliate to pass from one PEU to another.  The equity holding PEU loses out while the bondholding PEU takes control in an affiliate bankruptcy.

Once the junk bond falls far enough PEU sharks will enter the water hoping for a back door takeover.  Carlyle took control of Brinton's and Mrs. Fields in such a manner, but is in line to lose control of ManorCare for failure to meet its lease obligations. C'est la vie...in our PEU world.

Update 1-9-18:  Chapter 11 bankruptcies rose to Great Recesssion levels and commercial bank lending to corporations is stalling out.