Virginia Port Decision: Will Carlyle Group Win?

The Daily Press reported:

Gov.-elect Bob McDonnell's incoming administration will have the final say on the composition of an independent review panel that will study whether the state should enter into a long-term operating agreement with a private operator at the Virginia Port Authority's cargo terminals, a spokeswoman said Tuesday.

The Carlyle Group is one of three bidders for Virginia's port operations. Carlyle won its first infrastructure project, refurbishing and operating 23 Connecticut highway rest stops. Will Virginia do a better job of qualifying bidders and holding them to a request for proposal? Time will tell.


Update 9-12-10: Virginia effectively stopped the bidding process for state owned ports. The Carlyle Group expressed continued interest, should Virginia Governor Bob MacDonald be receptive. Carlyle spokesman Christopher W. Ullman wrote, "If the new administration decides private investment in the port benefits the state, Carlyle will look forward to participating." They have a great setup man on the inside.

Carlyle Group Goes from Control to 1% Owner of Stallion Oilfield

The Carlyle Group and its joint venture energy partner, Riverstone Holdings, invested $30 million in Stallion Oilfield Services in 2005. That grew to $122 million in 2008. It's now down to 2%, due to Stallion's bankruptcy. Note and bridge loan holders traded $543.2 million in debt for 98% of the company's equity. Carlyle and Riverstone have warrants to buy another 1% if Stallion's enterprise value reaches $750 million.

Upstream Online reported:

Stallion is projected to have an enterprise value between $533 million and $619 million.
Secured lenders will get $25 million to cover a portion of their loans and the remaining $220.9 million of loans will be reinstated, according to the plan.

That makes Carlyle and Riverstone's 2% equity stake between $6 million and $8 million. That's got to hurt. Maybe they should change the name to Gelding Oilfield Services.

Don't worry about Carlyle, they noted distressed corporate debt as a back door method for equity ownership. How many more affiliates will Carlyle lose to debt holders? How many will they gain via debt ownership?

Carlyle Group Yuans

The Beijing Municipal Bureau of Financial Work approved the Carlyle Group's start up of yuan denominated fund. Reuter's reported:

U.S. private equity giant the Carlyle Group [CYL.UL] has signed a memorandum of understanding (MOU) with China to launch a yuan-denominated fund in Beijing.

Global private equity firms can raise yuan funds from super-rich Chinese individuals, Chinese pension funds or domestic enterprises, but these funds are off limits to non-Chinese investors because of the country's strict foreign exchange controls.

How do Carlyle executives put skin in the game? David Rubenstein, William Conway and Daniel D'Aniello don't sound the least bit Chinese. Carlyle's press release provides a clue:

The Carlyle Asia Partners RMB Fund will be entitled to preferential treatment from the Beijing Municipal Government, in accordance with its development policies for the city’s finance and equity investment industry.

Can Carlyle get their money losing clients into Chinese investments? David Rubenstein promised unhappy investors that Carlyle would help make up losses with discounted fees.

Big money influence peddling goes global. Private equity underwriters (PEU's) are the answer to all our crises, banking, pension, infrastructure, and health care.

"Speculators" Stake Out Health Care Turf

Who knew health care reform would entice the very speculators President Obama derided nearly a year ago? The Chrysler cramdown was on and Perella Weinberg didn't like Uncle Sam's terms. President Obama called them:

"a small band of speculators.... I don’t stand with those who held out when everyone else is making sacrifices.”

Perella Weinberg read the health reform tea leaves, deciding there is money to be made. It purchased Tokum Capital, a $25 million fund specializing in health care. A Perella Weinberg representative said:

“Health care is viewed as a very important space, particularly given the degree of change occurring in the sector, and high-quality managers have an opportunity to generate alpha and distinguish themselves."

More directly, there's big money to be made. I smell a PEU, private equity underwriter.

Update 1-20-10 Perella Weinberg will invest $100 million in the transportation sector.

Mortgage Delinquencies Hit a Record High

Bloomberg reported:

Total U.S. mortgage delinquencies, excluding foreclosures, increased to a record high 9.8 percent, representing a month-over-month increase of 5.5 percent and a year-over-year increase of 21 percent based on data as of Nov. 30, Lender Processing Services Inc. said.

How long before delinquencies join unemployment at double digit levels?

PEU's $400 Billion

Bloomberg reported:

Private equity has about $400 billion of committed capital waiting to be put to work since dealmaking ground close to a halt in 2007, according to PitchBook Data Inc. in Seattle.

Private equity underwriters (PEU's) expect 25-30% annual returns for investors. They'll settle for less from government guaranteed infrastructure deals. But they won't stand for paying income taxes on their hefty gains.

BlackRock's Black Mark: Stuyvesant Town

Twenty thousand New York apartment dwellers are in limbo as complex owners, BlackRock Realty and Tishman Speyer Properties, defaulted on their loan. Efforts to renegotiate $3 billion in debt have been unsuccessful to date. They anticipated missing a $16 million loan payment on Friday.

Is this the same BlackRock advising the U.S. Treasury on complex mortgage backed securities? They have a web page devoted to real estate. It says:

BlackRock believes that successful real estate investing is a result of establishing a strategic advantage in portfolio exposures to property sectors and markets, and in the speed and quality of executing those exposures. This focus on strategy and execution is the cornerstone of BlackRock's investment philosophy. BlackRock's real estate investment strategy is guided by its proprietary research tools and the combined knowledge, experience and market expertise of its senior investment professionals.

However, BlackRock believes knowledge of a superior mix of sectors and markets is an advantage only if the portfolio can move to establish exposure in those sectors and markets quickly. The firm is therefore organized for maximum opportunity flow. The firm expands its acquisition flow by teaming its skilled transaction team with the experience and relationships of its portfolio and asset management teams to source investments and investment partners.

Except in the case of Stuyvesant Town and Peter Cooper Village. The partnership may be an equal opportunity shafter. DealBook reports:

Aside from the $3 billion in mortgages, there is an additional $1.4 billion in secondary, or mezzanine, loans and almost $1 billion in equity invested by the partners, a Florida pension fund, the Church of England and others.

Weren't financial CEO's crashing Church of England pulpits to proclaim their doing God's work? How does losing money for the Church square with that assertion?

Also in the mix are the government-controlled mortgage giants Fannie Mae and Freddie Mac, which together hold a bond that is secured by as much as $2 billion of debt on the property. Those two companies will get paid first with whatever revenue comes from the property, but they are not involved in the negotiations.

BlackRock and Tishman Speyer may hand the keys over to the Mac siblings, Fannie & Freddie. Funny, BlackRock was hired to evaluate Fannie and Freddie. How much will they charge Uncle Sam to analyze the impact of their default?

BlackRock advises the junk Bear Stearns investments held in Maiden Lane. Does the Fed hold any securities impacted by the default? What BlackRock can do for the U.S. taxpayer, given its abandonment of New York apartment residents, remains to be seen.

Update: GAO sees risk from potential CMBS failures to TARP & TALF programs

Update 2: BlackRock purchased over 39 million shares of WellPoint on 12-31-09. They spent $2.3 billion for 8.5% of the company. Over a week later BlackRock defaulted on Stuyvesant Town. BlackRock is a prime contractor for several Treasury rescue programs. How much taxpayer money went into the WellPoint stock purchase? WellPoint/Anthem raised premiums on individual policies up to 39% in several states. Is that to generate profits for their new shareholder?

Update 3: Losses on the Stuy Town loan look set to wipe out junior noteholders in related CMBS. (Structured Credit Investor)

Update 4: BlackRock purchased over 20 million shares (7.5%) of Simon Property on 12-31-09. That cost BlackRock $1.6 billion. NYT's Dealbook failed to mention any of the above information.

Update 5: The Federal Reserve Bank of New York provided $100 million to Tishman Speyer to restructure loans on Chicago properties. Jerry Speyer sits on the NYFed board.

Update 6: BlackRock has a lobbyist in D.C., firm founder Barbara Novick.