Thursday, March 18, 2021

Alignment Healthcare IPO Looms for Mark McClellan

Yahoo Finance

Alignment Healthcare Inc, a healthcare platform backed by private equity firms Warburg Pincus and General Atlantic, said on Thursday it is aiming for a valuation of up to $3.56 billion in its initial public offering in the United States.  
The California-headquartered firm is looking to cash in on the high investor demand for new stocks in the U.S. capital markets. .

Former Medicare Chief Dr. Mark McClellan is on the Alignment's Board of Directors.  He holds 213, 682 shares with plans to sell 13,154 in the IPO. Alignment's S-1A assumes an $18 per share price.  


That would value McClennan's holdings at $3.8 million and his sale proceeds would be $236,000. A portion of Alignment's bio is below:

Mark McClellan has served as a member of our Board since 2014. Dr. McClellan became the inaugural Director of the Duke-Robert J. Margolis, MD, Center for Health Policy and the Margolis Professor of Business, Medicine and Policy at Duke University in January 2016. He is also a faculty member at Dell Medical School at The University of Texas in Austin....  He sits on the Boards of Directors of  two public companies, Cigna Corporation and Johnson & Johnson.

The bio failed to mention McClellan is a private equity underwriter (PEU) with The Blackstone Group and Leavitt Partners, founded by former Health and Human Services Chief Mike Leavitt.  

McClellan and Leavitt gave advice on the future of Medicare payment systems in a STAT article in 2017.  

Reform of a system that has existed for decades takes time and will require iterative improvement and learning.

In 2015 Leavitt Partners joined The Brookings Institute to form the world's largest Accountable Care Organization collaborative.

If former Medicare and HHS Chiefs can steer healthcare reform to private companies, in which they have equity stakes, then flip those companies, they too could become policy making billionaires. 

It is clear that we can expect emphasis on needed payment reforms in areas of specialized care that account for substantial disease burdens and costs. 

CMS could provide more support for state-led payment reform efforts that include public and private payers.
Alignment Healthcare operates in three states, California, Nevada and North Carolina.  The company plans to use IPO proceeds for general corporate purposes.

Interesting facts in the company's S-1A for this seven year old company include

As of December 31, 2020, we had a pro forma net tangible book value of $(4.0) million, or $(0.02) per share of common stock.

Total tangible liabilities exceed total tangible assets. 

Existing shareholders have an average price of $2.52 per share

An $18 share price represents a 714% return.  That's a PEU payday for a Medicare Advantage company with 81,500 insureds and 3% market share in their 22 counties.  That's a handsome return given Alignment had net losses of ($44.7) million and ($22.9) million the last two years.

The S-1A gave the secret sauce for Alignment's assumed $18 valuation.

Our model is based on a flywheel concept, referred to as our “virtuous cycle”, which is designed to delight our senior consumers. We start by listening to and engaging with our seniors in order to provide a superior experience in both their healthcare and daily living needs. Through our AVA technology platform, we utilize data and predictive algorithms that are specifically designed to ensure personalized care is delivered to each member. When our information-enabled care model is combined with our member engagement, we are able to improve healthcare outcomes by, for example, reducing unnecessary hospital admissions, which in turn lowers overall costs. Our ability to manage healthcare expenditures while maintaining quality and member satisfaction is a distinct and sustainable competitive advantage. Our lower total healthcare expenditures allow us to reinvest our savings into richer coverage and benefits, which propels our growth in revenue and membership due to the enhanced consumer value proposition. As we grow, we continue to listen to and incorporate member feedback, and we are able to further enhance benefits and produce strong clinical outcomes. Our virtuous cycle, based on the principle of doing well by doing good, is highly repeatable and a core tenet of our ability to continue to expand in existing and new markets in the future. 

The PEU model is based on manipulation and greed. 

In 2014, we received a $125 million investment from General Atlantic, LLC, a global growth equity firm.  In 2017, we also received a $115 million investment in an additional round of funding from Warburg Pincus, a global private equity firm.

Another Medicare Chief turned PEU served on Alignment's board:

In addition, Mr. Andy Slavitt formerly served as a director of the Company

Slavitt founded Town Hall Ventures, which raised its first fund focusing on Medicare and Medicaid in September 2018.  

Turn over a PEU rock and you'll find a former Medicare Chief.  I call this misalignment healthcare.

Update 3-18-21:  I wondered how Dr. McClellan got appointed to the Alignment Board in 2014.  His resume at Brookings provided the answer.  McClellan served as advisor to General Atlantic and three other firms.  General Atlantic invested in Alignment Healthcare in May 2014.  


Another McClellan advised investment firm, Capital Royalty Group (CRG) put an undisclosed amount into Alignment Healthcare, .

He got on the Alignment board by virtue of his paid relationship with at least one PEU.  IPO documents portray McClellan as an independent board member.  That may or may not be the case.

After turning over one more rock I learned McClellan is an advisor to yet another PEU:

McClellan also serves on PrognomIQ's Board of Directors.  PrognomIQ is an affiliate of aMoon, Israel's largest healthcare venture fund.

How many PEUs can contribute to the fortunes of a politically connected former public servant?  The number may be unlimited.

Wednesday, March 17, 2021

Carlyle Bidding on Fly Leasing

 Seeking Alpha reported The Carlyle Group is one of three remaining bidders for aircraft leasing company, Fly Leasing.  Fly leases commercial jets to "a diverse group of airlines throughout the world."

Carlyle announced the deal for Global Jet Capital in October 2014.  It closed in early 2015.  Carlyle's website states Global Jet Capital is "provider of leasing and lending solutions to the private aviation market."

Fly's website shows a Boeing 787 aircraft which Carlyle should know well.  Carlyle owned Vought Aircraft Industries, a major 787 supplier.  

Boeing bought out Vought's South Carolina operations after Carlyle gunked up 787 production.  Senator Lindsey Graham helped Carlyle decide to take the $66.7 million from South Carolina, which handily beat the $35 million Texas Governor Rick Perry already gave Carlyle for the same jobs.  

Perry claimed Vought created 26,000 new jobs when in reality it cut 35.  Texans paid $1 million per job lost to the politically connected private equity underwriter (PEU).  Vought knew in 2006 it was not going to provide its Texas jobs commitment.

Amounts previously disclosed for 2004 have been updated to reflect a reclassification of $35 million in grants received from the State of Texas from operating activities to financing activities.

Rick Perry fed public money to the right people and for that he eventually became President Trump's Energy Secretary.  

Follow the PEU boys and you'll find a pot of money and a gaggle of politicians.  Politicians Red and Blue love PEU.

Update 3-26-21:   General Atlantic invested in Greensill in 2018, before its cataclysmic implosion. A former Medicare Chief came to mind when I learned a Congressional Committee will explore nursing home care provided by PEU affliates.  Gail Wilensky sat on ManorCare's board when The Carlyle Group purchased the giant nursing home company.  Carlyle ran ManorCare into the ground.

Tuesday, March 16, 2021

Carlyle Group's One Medical Vaccination Debacle

In early February One Medical employees sounded the alarm on unauthorized people receiving COVID-19 vaccinations.  Forbes reported:

Two employees of primary care firm One Medical with direct knowledge of the practice shared with Forbes that the company has not been enforcing state guidelines in distributing Covid-19 vaccines. Both employees asked to remain anonymous for fear they would lose their jobs. 

One Medical has a compliance department charged with addressing identified issues and protecting whistleblowers.  In practice, compliance and human resources are weapons for executives to use against workers.  NPR reported:

Messages among doctors, other medical practitioners, administrative staff and leadership show that multiple staffers across One Medical locations in several states — Washington, Oregon and California — privately raised the alarm about what they believed were lax oversight and inappropriate practices within the organization. They also show what appear to be favors done for those close to the organization's senior staff.

Internal communications indicate that ineligible friends and family of One Medical leadership were vaccinated, as were work-from-home administrative, support and IT staff from its headquarters in San Francisco. While health care workers waited in line in January, One Medical made the decision to offer the vaccine to any of its San Francisco County staff members, regardless of whether they were patient facing.

The Carlyle Group remains the lead shareholder of One Medical, post IPO.  Carlyle's billionaire co-founders are familiar with the benefits of privilege.  It's not surprising that One Medical senior staff felt entitled as well.  

San Francisco's Department of Public Health dropped One Medical as a COVID-19 vaccination provider. NBC Bay Area reported:

The Investigative Unit received reports of people paying the standard $200 membership fee just to take advantage of One Medical’s easy-to-book vaccine appointment system. In some cases, the individuals said they did not live in San Francisco. Some said they already had other health care providers.

The Washington State Department of Health also stopped giving vaccines to One Medical. 

In the midst of the controversy the private equity trade group, American Investment Council, promoted Carlyle's role in One Medical giving COVID-19 vaccinations.  It did not identify already issued concerns over One Medical's shoddy vaccination practices.  That's the PEU way.

Friday, March 12, 2021

Blackstone's Texas-Mexico Power Failure


U.S. private equity firm Blackstone in 2016 unplugged a Texas power plant that it owned from the state's grid in a bet that it could make a fortune as the only American-based generator selling electricity exclusively to Mexico.

That bet has gone south.

Nearly five years later, Blackstone's gas-fired plant, Frontera Holdings LLC, is struggling to exit bankruptcy after burning investors holding nearly $1 billion of its debt - the victim of a succession of problems ranging from a power market collapse in Mexico in 2020 to last month's severe cold snap.

Frontera filed for bankruptcy protection last month in Houston, extinguishing loans and notes held by U.S. hedge funds, mutual funds, pensions and private equity firms, according to U.S. regulatory filings.

Recently Blackstone CEO Stephen Schwarzman's income was revealed:

Blackstone Group Inc Chief Executive Stephen Schwarzman pocketed at least $610.5 million in 2020 from dividends and compensation, more than any other private equity executive and up 20% from last year despite the impact of the COVID-19 pandemic, regulatory filings showed.

Schwarzman was not alone.  His fellow private equity underwriters had a banner year.

Private equity executives who rank among the richest men on Wall Street received hundreds of millions of dollars in payouts even as the US economy faltered last year, helped by central bank stimulus that wiped out the investment losses they recorded early in the pandemic. 

Former PEU Jay Powell runs the U.S. Federal Reserve Bank and has multiple PEU assistants. 

Back to Blackstone's Mexican power failure:

The plant, for example, generated about $87 million in profit on nearly $200 million of revenue in 2019, according to disclosures in U.S. Bankruptcy Court in Houston.

That year, Blackstone paid itself a dividend of about $116 million, following a similar payout of $120 million the previous year, from operating cash and incremental debt, court disclosures show.

Blackstone sucked $236 million from Frontera while increasing its debt load.  It took one event to send the company under.

This story is not new.  The Carlyle Group did that exact thing with Philadelphia Energy Solutions.  Elected officials gave Carlyle's PES public tax money.  There were no legislative consequences for the politically connected PEU post PES bankruptcy after a huge explosion.

The judiciary may provide justice to those injured by greed.  Corporate boards selling to PEU's could be liable for fraudulent corporate transfer.  A Directors and Officers' litigation case involving Nine West, Jones Group and PEU Sycamore Partners will go forward.  

The case "highlights the risks faced by directors and officers of companies in financial distress who fail to undertake properly their duties to the company and its stakeholders." 

Nine West's capital structure under Sycamore is a litigation issue.  

How might any decision apply to directors and officers who approve debt funded dividends to parent PEUs that send the affiliate into bankruptcy, while enriching billionaire PEU founders like Stephen Schwarzman and David Rubenstein?  It remains to be seen.

Monday, March 8, 2021

PEU Boys Target Texas Electrical Market Post Deep Freeze


Financial strains on Texas city-owned utilities, rural electric cooperatives and the grid operator has spurred calls for state aid and lured private equity firms into plans to fix multi-billion-dollar charges.

The state's power costs jumped by roughly 10 times the usual, to about $47 billion, during a week-long cold snap that took down nearly half of its power plants. The charges have driven one co-op into bankruptcy and left two dozen others facing bills they will be hard-pressed to cover without outside help.

Several private equity firms have been in talks with the operator of the Texas electric grid to provide it financial support, four people familiar with the talks told Reuters.

 ERCOT is the nonprofit Texas electrical grid operator.

It remains unclear what form this funding would take and whether Texas officials would agree to an offer from private equity firms. The buyout firms would likely provide a loan or bond which would cover the near-term cash needs of the Electric Reliability Council of Texas (ERCOT), the people said.

Texas funneled millions to private equity underwriters like The Carlyle Group.   Governor Rick Perry gave $35 million to Carlyle affiliate Vought Aircraft Industries for 3,000 new Texas jobs (which never materialized).  Triumph overpaid Carlyle for Vought with its unfulfilled Texas promise.

I wrote my elected state official on Carlyle's free use of $35 million in taxpayer money for nearly six years.  Representative Drew Darby defended Governor Perry's economic development kitty.  

Rep. Darby is the former Chair and current member of the House Energy Committee.  He is a key figure in rejiggering the Public Utility Commission and ERCOT after the Valentine's Day winter storm.  Disclosure:  We lost power on Sunday, February 14th.  It was not fully restored until Thursday, February 18th.

PEU boys "bait and switched" the state of Texas on Vought.  The switch occurred two years into the fifteen year economic grant period when Vought reclassified the $35 million from operating activities to financing activities.  Texans gave The Carlyle Group a free six year loan of $35 million.  After cutting 35 jobs (vs. adding 3,000) Vought repaid a mere $900,000.  That's an annual interest rate of 0.2%.  

Carlyle's sweetheart deal should anger Texas citizens.  Granting the greed and leverage boys a stake of Texas electrical utility mess adds to my level of outrage.  Piss poor service and high bills are my experience having worked for more than one private equity affiliate. 

Griddy, the seller of wholesale energy, charged citizens outrageous bills during the winter storm crisis.  It received an investment from Macquarie in December 2020.  Macquarie, like The Carlyle Group, seeks outsized returns on their money.  

PEU boys have a record of broken promises in Texas, as does the state legislature.  Let's not have these groups pair up for Texas' electrical future. 

A walk back in time to PEU ownership of TXU, which was renamed Energy Future Holdings, revealed.

They (KKR, TPG and Goldman Sachs Capital Partners) have pulled $560 million in advisory and monitoring fees out of the company since the buyout and created an operating structure that's built to squeeze everything they can from debt holders.

By April 2014 the company couldn't make its scheduled debt payments and was forced into bankruptcy.

Goldman Sachs energy traders stand to make as much a $200 million off the winter storm.

Traders at Goldman Sachs Group Inc could earn roughly $100 million in profit from the winter storm last month that left many across Texas and other southern U.S. states without electricity, clean water and heat, Bloomberg News reported on Friday.

The Wall Street bank's earnings from the physical sale of power and natural gas and financial hedges after spot prices jumped, could top $200 million on paper, but they will likely take a significant write down, Bloomberg reported.

The Texas legislature designed and oversaw the electrical system and market which recently failed millions.  It should not turn to the greed and leverage boys in reforming or repairing what elected officials and their appointees broke so spectacularly mid February. 

Update 3-10-21:  Texas Governor Greg Abbott sent the overcharge issue to the Texas Legislature. What might they do with $16 billion in overcharges the PUC refused to reverse?  The PUC is down to one person.  

Update 3-12-21:  Blackstone Group affiliate Frontera Holdings declared bankruptcy.  Frontera sells electricity to Mexico from a Texas power plant.

Thursday, March 4, 2021

Macquarie Invested in Griddy in December 2020

ERCOT revealded Griddy owes nearly $25 million.  

BIC Magazine reported:

Texas’s grid operator on Friday shut Griddy Energy LLC’s access to the state’s power network for unpaid bills and shifted its 10,000 customers to other utilities, as new signs of a financial crisis rose after a state-wide blackout, as reported by Reuters.

Griddy was the power marketer that sold consumers electricity at wholesale rates, which rose to $9,000 per megawatt hour as cold weather struck the state last week. Unable to cope with demand, utilities cut power to 4.3 million residents as temperatures fell below freezing.

BIC Magazine did not mention Macquarie's recent investment in Griddy, announced in December:

Griddy Energy, the pioneer of direct-to-consumer wholesale electricity in Texas, appoints Michael Fallquist as Chief Executive Officer, Christian McArthur as Chief Operating Officer and Roop Bhullar as Chief Financial Officer and enters into an agreement with Macquarie Energy, a subsidiary of the Macquarie Group, to provide a wholesale supply facility and investment capital to support Griddy's growth and market expansion

With this new leadership team, their main focus for the upcoming months will be:

  • Solutions to combat price volatility, including a "price lock" feature for peak periods
  • A network marketing program to rapidly grow the business in Texas and facilitate expansion into new markets 

The news wasn't all bad for Macquarie, an Australian investment bank with numerous affiliates.

Australia’s Macquarie was one of the largest winners in the cold snap, benefiting from record U.S. natural gas prices. It could collect a $317 million profit from the weather-related gas binge, analysts said.
Macquarie demanded Exxon cover the wholesaler’s $11.7 million in damages for missed deliveries.  Exxon is suing to void the penalties.

The Texas legislature turned our electric system into a market that price gouged power to many as it left millions in the cold and dark.  I was one of those Texans with no power for days..

In addition to energy trading, Macquarie owns controlling stakes in utilities and pipelines. Plus, it’s a major player in infrastructure privatization projects like highways, and could stand to benefit from a large-scale infrastructure bill being discussed in Congress. Macquarie is the next corporate giant we have to all learn about, and its recent history should not inspire confidence.
While Macquarie sold its private equity division in 2014 the firm operates much like a PEU.  It targets U.S. infrastructure and flips funds like PEUs flip affiliates.  

Widespread suffering in Texas produced a profit guidance upgrade for Macquarie.  Macquarie should change its name to "Greedy."

Update 2-11-23:  Exxon will use its record profits to open a trading division in the "high risk, high reward world of energy derivatives."  Is Jeff Skilling available for hire?