Carlyle Pays DBDs $193 Million

The Carlyle Group's ruling triumvirate, David Rubenstein, Bill Conway and Danny D'Aniello, made big money in 2017 (Bloomberg).  The DBDs took home $193 million in 2017.  

Bloomberg reported:

The founders of Carlyle and Apollo Global Management LLC, unlike peers at Blackstone Group LP and KKR & Co., don’t receive carried interest, or a cut of deal profits. 

Actually, founders don't pay carried interest on their PEU investments.  Carlyle's SEC filing stated their co-investments weren't "subject to management fees, incentive fees or carried interest."  That means The Carlyle Group took a much smaller chunk from founder co-investments than it took from limited partners.   The DBDs got to invest without fees, which were born by other investors.

The filing did not report the DBD's return/profits from co-investments.  Those could easily dwarf the $193 million reported.

Carlyle Funds Founders' Private Jets

Private jets are used in the normal course of billionaire events.  The Carlyle Group paid $3.33 million for the use of Mr. David Rubenstein's private jet, $1.2 million for Mr. Daniel D'Aniello's and $479,586 for Mr. William Conway's.  Here's the DBD breakdown per Carlyle's recent SEC filing.

In the normal course of business, our personnel have made use of aircraft owned by entities controlled by Messrs. Conway, D’Aniello, and Rubenstein. Messrs. Conway, D’Aniello, and Rubenstein paid for their purchases of the aircraft and bear all operating, personnel and maintenance costs associated with their operation for personal use. Payment by us for the business use of these aircraft by Messrs. Conway, D’Aniello, and Rubenstein and other of our personnel is made at market rates, which during 2017 totaled $8,700 for Mr. Conway, $232,065 for Mr. D’Aniello, and $436,385 for Mr. Rubenstein. We also made payments for services and supplies relating to business use flight operations to managers of the aircrafts of Messrs. D’Aniello, Conway, and Rubenstein, which during 2017 aggregated $470,886 in the case of Mr. Conway’s aircraft, $972,397 in the case of Mr. D’Aniello’s aircraft, and $2,897,308 in the case of Mr. Rubenstein’s aircraft.

PEUs receive outsized benefits from President Trump's tax cuts.  Our White House billionaire clearly knows his constituency. 

Carlyle Still Owns Conflicted ManorCare

The Carlyle Group continues pulling the strings for nursing home giant ManorCare.  Last summer Carlyle said it would cede control of ManorCare to QCP, the real estate investment trust that owns the nursing home facilities.  It hasn't.

Under the lease, ManorCare agreed that QCP would have the right to appoint an independent receiver to operate the facilities in the event of a default.

“HCR ManorCare has refused QCP’s requests to appoint fully independent directors and officers to oversee the skilled nursing and assisted living/memory care businesses at facilities owned by QCP,” the REIT stated. “Instead, the facilities remain under the control of the incumbent HCR ManorCare senior executive team and board of directors, who QCP believes are burdened by irreconcilable potential or actual conflicts of interest, including duties to sister companies in the HCR ManorCare group, personal claims against the HCR ManorCare group and potential personal exposure to HCR ManorCare and/or its stakeholders.

The article left out duties to parent corporation, The Carlyle Group, which commonly charges affiliates management fees.  ManorCare's website showed the two big events that set the stage for the current debacle:

2007
The company is taken private with The Carlyle Group as the majority owner. The name of the company changes to HCR ManorCare.

2011
In a sale/leaseback transaction, company sells 338 post-acute, skilled nursing and assisted living facilities to HCP, a real estate investment trust (REIT) headquartered in California, for $6.1 billion. HCR ManorCare continues to operate and manage all of the assets sold.

HCP/QCP bought ManorCare CMBS debt before striking the big $6.1 billion deal.  HCP hosted Investor Day in May 2015 and highlighted its ManorCare portfolio.

A year later HCP spun off ManorCare's properties to insulate the REIT from its infected investment.

After several years of declining operating results, our executive management team and Board of Directors decided in May 2016 to spin off our HCRManorCare, Inc. (HCR ManorCare) portfolio of post-acute/skilled nursing properties.

In summer 2017 ManorCare's ship sunk underwater from the capital structure imposed by Carlyle.  The rats came out according to the NYPost.

ManorCare CEO Paul Ormond was demanding the immediate payout of a $100 million deferred settlement package. The Carlyle Group, the private equity firm that has owned ManorCare since 2007, had apparently washed its hands and given its blessing to QCP, with Carlyle’s management was actively “ceding control” to the REIT. No such deal ever materialized.

February 2018 found HCR ManorCare failing to pay the Reduced Cash Rent amount of $14 million due on January 25, 2018.  QCP reduced ManorCare's cash rent several  times.  It went from $39.5 million to $32 million to $23.5 million.

The question is why ManorCare hasn't gone into bankruptcy?  It's defaulted on its master lease agreement.

On July 7, 2017, QCP delivered a notice of default under the Master Lease relating to nonpayment of rent due and other matters. The notice of default demanded payment of all current and past due rent, totaling approximately $79.6 million, by the end of the day on July 14, 2017. Such amount was not paid, and therefore, an Event of Default exists under the Master Lease, requiring the immediate payment of an additional approximately $265 million.

Carlyle's David Rubenstein knows banks and leaseholders don't want to take over and run corporations. What does Carlyle gain by dragging its feet?

Update 3-11-18:  ManorCare filed for bankruptcy on Sunday, March 4th.  ManorCare workers who protested Carlyle's purchase in early 2007 feel somewhat vindicated.

Update 11-25-18:  WaPo nailed Carlyle's role in sinking ManorCare.