Carlyle Group's Two Slots on GM Bode Well For Auto Affiliates

The U.S. Treasury Department appointed 10 of GM's 13 board members. Two of those slots are occupied by the Carlyle Group, a testimony to the private equity underwriter's buyout skills and high level political connections. The PEU has a track record of reading government tea leaves and making a mint off the federal taxpayer.

Kent Kresa served as interim Chairman of General Motors. After leaving Northrup Grumman, Mr. Kresa served as Senior Advisor to the Carlyle Group.

Also named to the GM board is Daniel Akerson, Managing Director of the Carlyle Group.

What will this pair do for Carlyle's substantial automotive portfolio? Carlyle just added Metaldyne to their automotive stable. How will GM steer business to the politically connected PEU? And how will Rahm Emanuel help? Surely, GM came up in the White House Chief of Staff's dinner meeting with Carlyle co-founder David Rubenstein.

5th Annual Clinton Global Initiative Sponsored by Carlyle's Booz Allen Hamilton

The Clinton Global Initiative will gather again to "make progress on great global challenges." Four action areas include:

Harnessing Innovation for Development

Technological, business, and organizational innovations that translate today’s social and environmental challenges into opportunities for development can be a critical source of economic value. Leading corporations are creating new products and services to meet worldwide demand for affordable, nutritious, and safe food; decent housing; capital; energy efficiency; and more.

Strengthening Infrastructure

In the absence of clean water, health facilities, housing, transportation, clean energy, and other vital systems, societies and businesses will not realize their full potential. Governments around the world are expanding their financial commitments to infrastructure, creating diverse investment opportunities and improving the quality of life for societies.

Building Human Capital

Businesses and societies require a healthy, well-educated, and properly trained workforce to thrive. Yet fundamental education and labor-market challenges threaten the well-being of global workforces. As the global community seeks to recover from an economic slowdown, job creation will be more important and challenging than ever. Fortunately, there are opportunities to be seized in emerging industries and markets, where jobs can be created in ways that also address social and/or environmental challenges throughout the supply chain.

Financing an Equitable Future

Despite the current economic crisis, investment opportunities are expanding in emerging markets that promise to contribute to sustainable economic growth and development worldwide. A new destination for capital is “impact investing,” which aims to generate financial returns in addition to social impact. Cooperation between the public, philanthropic, and private sectors is essential to build a sound financial infrastructure to support the growth of impact investing.

How many private equity underwriters (PEU's) will attend? They'll have the opportunity to rub elbows with an amazing group of high octane leaders. WaPo reported:

High-level political attendees will include Secretary of State Hillary Clinton (okay, no surprise there), Larry Summers, Valerie Jarrett and more than 30 current and former heads of state. From the financial industry, Goldman Sachs CEO Lloyd Blankfein and J.P. Morgan Chase CEO Jamie Dimon will be there, along with Cisco CEO John Chambers, WellPoint CEO Angela Braley, and Mexican investor Carlos Slim.

The Carlyle Group likes to keep their good name out of the media, but this is clearly their milieu. Having affiliate Booz Allen Hamilton as sponsor won't hurt Carlyle's global profit making goals. Connections like this drive 25% annual investment returns. Carlyle and its peers will profit handsomely from public-private partnerships. How will President Bill Clinton's Fifth Global Initiative further that aim? It's happening September 22-25 in the Big Apple.

Does anyone else find it ironic that Booz is paying for the Fifth?

Banks Don't Go Back to Basics

When Wall Street imploded in September 2008, many called for a return to basics in finance. BusinessWeek reported many banks are doubling down, offering predatory payday loans to risky borrowers and packaging financial chainsaws (credit derivatives) with corporate credit lines. Also, they're selling structured notes to small investors. What are they? Investopedia says:

Structured notes are a debt obligation that also contains an embedded derivative component with characteristics that adjust the security's risk/return profile. The return performance of a structured note will track that of the underlying debt obligation and derivative embedded within it.

Another definition:

Structured notes are financial products that appear to be fixed income instruments, but contain embedded options and do not necessarily reflect the risk of the issuing credit. These options may be "plain vanilla" or they may be highly leveraged exotic options. Due to the fact that each one is unique, the risks inherent in any one structured note may not be obvious.

Payday loans, derivatives for small investors, forced credit default swaps for corporate credit lines? Banks are back to Wall Street basics, greed.

ECW and PEC Make News

The Economic Club of Washington hosted Christina Romer, Obama's chief economist. Carlyle Group co-founder David Rubenstein introduced Ms. Romer. Rubenstein conducted the Q & A session following her remarks.

Later in the day, the Private Equity Council asked for relaxed regulations for private equity underwriters (PEU's) buying banks. They want lower capital requirements than proposed and a shorter term investment window, 18 months vs. 3 years.

The FDIC will move fast in finalizing the guidelines. Like health care reform, the devil will be in the details. The PEU devils are primed to get their way. They know how to generate huge profits on the taxpayer's back.

Congress and the White House know how to fork over huge chunks of government business to PEU's, when not granting direct handouts. Carlyle & company got $4.9 billion in FDIC subsidies in their purchase of BankUnited.

Coming Wall of PEU Refinancings

Private equity underwriters borrowed heavily during the go-go buyout years. They put down as little as 15% in a cheap credit environment. Times changed, but the deal clock still ticks. At the 2009 Wharton Private Equity & Venture Capital Conference, a panel spoke of major refinancings in 20012-2013. Consider the words of one private equity underwriter (PEU):

Peter J. Clare, managing director at the Carlyle Group, predicted that credit markets would remain expensive for close to two years, suggesting it would take at least that long for the banking system to get its bad assets off the books and recapitalize.

It turns out the banks aren't the only ones with a problem. Carlyle's HCR ManorCare has billions in securitized debt going for a discount.

The health care properties REIT HCP has acquired a $720-million stake in first mortgage debt of HCR ManorCare at a discount for approximately $590 million. The $720 million participation represents 45% of the $1.6 billion most senior tranche of mortgage debt owed by Toledo, OH-based HCR ManorCare, which operates skilled nursing and rehabilitation centers.

Their highest quality mortgage debt sold at a $130 million discount, an 18% haircut. HCR ManorCare's $3 billion in mortgage debt comes due in 2012. Who will step up and refinance?

What do good financial vultures do during difficult times? They look for new ways to find carrion.

Regarding the risk-return ratio, Clare added, the debt market represents one of the best investment options. He suggested thinking about this market as two buckets. One is the debt of healthy companies returning 15% to 25%. The other is the debt of distressed companies that could be purchased to gain control of the business or drive it into a restructuring. Such an approach will become increasingly popular, he said, though it is still early in the process. A lack of covenants and other mechanisms that would trigger default sooner are delaying inevitable restructurings. "Given the maturities, this is going to continue for four or five years at a minimum. We're in the top of the first inning in terms of restructuring and distressed-debt opportunities."

Forced divestitures will also provide opportunity, he said. Major companies under pressure, such as AIG and Citigroup, will need to unload desirable businesses. "It will take a while for buyer and seller expectations to line up." However, "the companies that become available to us will be at valuations that are more attractive."

Carlyle will buy debt and take over companies via the back door. Peter should know as it happened to Carlyle with SemGroup, an energy pipeline company. Senior lenders stand ready to take over Carlyle's IMO Carwash. Thus, Carlyle wants friendly firms holding their affiliates' debt. HCP must be the good guys.

They'll also buy distressed assets from companies under the financial gun. Carlyle's good deal on AIG and CitiGroup businesses likely mean less in taxpayer pay backs.

But there's more. Cash strapped municipalities and states will sell off prime public infrastructure on the cheap to the PEU boys.

Carlyle Snags Two Spots on National Council on Energy Policy

The Carlyle Group, a politically connected private equity underwriter (PEU), occupies two slots on the National Council on Energy Policy. Their two members are:

Robert E. Grady: Managing Partner, Carlyle Venture Partners, The Carlyle Group and former Executive Associate Director of the OMB

R. James Woolsey: Senior Executive Adviser, Booz Allen, Hamilton; former Director of Central Intelligence

Carlyle purchased Booz, Allen, Hamilton in June 2008. Energy policy has a history of driving military and economic tampering throughout the world. The Carlyle Group is uniquely qualified and connected to lever government assistance. Carlyle co-founder David Rubenstein regularly chats and dines with high level Obama staffers. Another co-founder, William Conway hates a level playing field. What can they do to get Carlyle affiliates and joint venture partner Riverstone Holdings companies a bigger piece of the global energy pie? My guess is plenty.

Carlyle's MultiPlan Buys WCAS's Viant

Two politically connected private equity underwriters, The Carlyle Group and Welsh, Carson, Anderson, & Stowe, arrived at a deal. Carlyle's MultiPlan will acquire Viant from WCAS. The price was not disclosed. Both firms offer health networks and cost management services to health insurance plans.

Carlyle recently purchased 80% of Groupe Marle, a French orthopedic implant maker. They plan to sell products in North America. Will MultiPlan/Viant's cost management services steer orthopedic surgeons to the Marle product? Will Medicare make Marle's products preferred under the new extra-Congresssional Medicare oversight body?

Carlyle has the connections to deliver. WCAS has ex-Medicare Chief Tom Scully is a General Partner. He delivered a sweet Prescription Plan for big Pharma. How will health care reform drive business to Carlyle's substantial and growing health care portfolio? Stay tuned.