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.

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.