Carlyle Capital Trial Underway

Carlyle Group co-founder Bill Conway testified in Guernsey in defense of the failed Carlyle Capital Corporation (CCC), a highly leveraged mortgage backed security investment.  CCC liquidators brought a $1 billion suit against parent Carlyle Group.  WSJ reported on Conway's responses under oath:

On CCC’s use of 30 times or more borrowed money: “It was highly leveraged but I didn’t think the risks were going to happen, the risks that led to the downfall of CCC, the systemic market collapse.” 

On 2007’s credit crunch: “I certainly did not think it was something that was going to lead to the end of Lehman Brothers, the end of Bear Stearns, the end of Wachovia, the end of Merrill Lynch as companies.”

Conway admitted CCC was a canary in the coal mine of financial crisis. The WSJ piece also has a series of e-mails between Carlyle chiefs as CCC approached implosion.  Creditors no longer trusted Carlyle to make good on its bets.

Corporate debt, much of it private equity sponsored, ballooned since the financial crisis.  Just like CCC got overrun in 2007 private equity loans could be at risk.

Carlyle recently sold Brazilian lingerie maker Scalina for a huge discount in order to pay creditors something.  The Carlyle Group is also down $25 billion in assets under management in the last year.  Darkness looms as Carlyle reminds us of their shenanigans during the last financial crisis.

Brazilian Banks Subsidize Carlyle's Scalina Sale

Reuter's reported:

Lupo SA, a Brazilian underwear producer, has agreed to buy Scalina SA, a lingerie and hosiery maker backed by Carlyle Group LP, for an undisclosed sum.
A source with direct knowledge of the deal told Reuters that Lupo and Scalina's owners - Carlyle, millionaire Artur Grynbaum and the company's founding Heilberg family - negotiated a price tag of around 90 million reais ($28 million) for the company.

Six years ago Carlyle acquired a 51% stake in Scalina for 280 million Brazilian reais ($160 million).  An earlier Reuter's piece detailed the challenges Carlyle faced in operating Scalina:

In 2010, when Carlyle bought 51 percent of Scalina, revenue was growing at an annual rate of 20 percent.

But one year later, when Scalina's retail strategy foundered, the buyout firm allowed a new investor group led by Grynbaum to inject cash in the company in exchange for the minority stake.

Carlyle has been trying to sell Scalina for the past three years, since the economy show signs of cooling, the sources said.

Carlyle is finally out of Brazilian lingerie.

Under the plan, proceeds from the deal will be used to help repay part of 160 million reais ($48.65 million) in loans that Scalina took from Itaú Unibanco Holding SA, Banco Santander Brasil SA and Banco do Brasil SA, the sources added. As part of the agreement, the banks will take a loss on the principal of the debt.

Carlyle likely got something from the company, management fees, debt for dividend, or a portion of new investor funds.  But Carlyle's Brazilian underwear venture shrank significantly.

I find it hard to believe Carlyle recouped their original $68.3 million cash investment in Scalina.  If they did it was due to the generosity of the company, a new investor and the final bank subsidy.  Carlyle and Scalina know but they aren't talking.

Update:  Oddly The Intercept has a story on Brazilian billionaires.  It seems Brazil's super wealthy have much in common with our greed and leverage boys. 

Update 7-28-16:  Carlyle plans to sell a huge stake in Brazilian travel operator CVC.

Carlyle Group Like Hillary: No Consequences for Unauthorized Mountain Water Sale

 The Bozeman Daily Chronicle reported:

When The Carlyle Group purchased Mountain Water in 2011, it had also agreed not to sell the utility without PSC approval.

The Carlyle Group did just that in January.

The $150,000 fine for failing to fulfill Carlyle's original commitment is not coming out of Carlyle's pocket.

A Missoula water company (Mountain Water) has agreed to pay a $150,000 fine over its unauthorized sale and the new owner has agreed the utility can’t be sold again without Public Service Commission approval.

Mountain Water is paying the $150,000 fine.  The new promise sounds alot like the old promise which Carlyle reneged upon for profit purposes.  This is hardly justice.

Just as no reasonable prosecutor would charge Hillary Clinton for her negligent e-mail activity, no reasonable regulator would penalize the PEU that profited handsomely by ignoring their stated regulatory commitment.

Political royal families and private equity underwriters (PEU) share an ability to remain above the law.

Update 7-9-16:  ZeroHedge called it impunity which fits with The Carlyle Group.  IMPEUNITY

Untouchables: Hillary & Wall Street

FBI Director James Comey broke the news that Hillary Clinton acted contrary to U.S. laws but will face no accountability.

The FBI is part of the U.S. Department of Justice.  That's the "Just Us" Department that turned their gaze away from widespread fraud that caused the 2008 Financial Crisis.  Apparently "no reasonable prosecutor" would bring such a case as no Wall Street executives were charged.  Citizen Hillary received millions in Wall Street speaking fees after stepping down as Secretary of State. 

In late 2007 Hillary Clinton gave banks free passes for abandoning due diligence in packaging/selling loans as AAA rated.  President Obama's "Just Us" Department followed Hillary's lead since his 2009 inauguration.  Attorney General Eric Holder repeatedly allowed Wall Street firms to settle with fines for breaking the law.  Executives used those fines as tax deductions, helping boost their incentive compensation.  That leaves more money to donate to candidates.  Get the picture.

Carlyle's Rubenstein Predicts the UK Won't Exit EU

Washington Business Journal reported:

Billionaire private equity guru David Rubenstein has some advice for those concerned about the the eventual departure of the United Kingdom from the European Union: Don't panic, it won’t happen.

Carlyle Group (NASDAQ: CG) co-founder and co-CEO, speaking at the 2016 Aspen Ideas Festival in Colorado, said he believes it's highly unlikely Brexit will actually move to completion.

Rubenstein knows that public opinion, polled or recorded into vote, does not matter to the ruling elite.  It's something to be spun to his benefit and to his fellow private equity underwriters (PEU).

He and his PEU ilk retain their preferred carried interest taxation.  Ten years ago a majority of the public opposed a secretary or gardener paying a higher tax rate than their billionaire boss.  During the same decade wage increases evaporated while employers passed higher benefit costs onto those lucky enough to have a job.

PPACA, designed by PEU Nancy-Ann DeParle, set up healthcare for the next big billionaire profitgasm.  It ignored public opinion and foisted bad coverage, which continues to accelerate in price, on citizens. 

The general public experienced a decade of stagnation, fundamentally ignored by the political elite. Rubenstein knows this deep in his bones.  It's no surprise it emanated from his mandible. 

Rogoff Rubenstein in Unique Position to Clarify Hilcorp's Relationship with Carlyle

Alaskan Dispatch News Publisher Alice Rogoff Rubenstein, the wife of Carlyle Group co-founder Devid Rubenstein, could quickly disclose any interests her family has in Alaskan oil.  Reuters reported on December 18, 2015:

Hilcorp Energy Co, a closely held U.S. independent exploration and production company, on Friday said it had formed a partnership with private equity firm Carlyle Group LP to acquire and develop North American oil and gas properties.

Carlyle's Energy Mezzanine Opportunities Fund, LP and Carlyle Energy Mezzanine Opportunities Fund II, LP have agreed to invest up to $1.24 billion in the newly formed partnership called Hilcorp Energy Development LP.

Houston-based Hilcorp, founded by Jeffrey Hildebrand in 1989, has operations in the Gulf Coast of Texas and Louisiana, the U.S. Northeast and Alaska.

ADN missed the founding of Carlyle's joint venture with Hilcorp.  A different Hilcorp story stole the headlines that December day of 2015.

"Houston oil and gas company Hilcorp goes viral after giving six-figure bonuses to every employee "

ADN ran several pieces on Hilcorp Alaska.  They ranged from Hilcorp's aggressive plans to develop Arctic oil/gas fields to concerning pieces on employee health and safety practices. 

Since its founding in late 2015 Hilcorp Energy Development LP has produced no news. The Reuters' piece stated:

Oil and gas companies are increasingly looking to private equity firms as low commodity prices sap cash flow and access to capital markets is squeezed. 

This would lead one to believe Hilcorp put some of its existing energy portfolio into the Carlyle joint venture.  An enterprising journalist might enlighten Alaskans on such developments.  That is if they want the public to really know. 

Celebrating PEU Fee-dom this July 4th

This 4th of July elected officials all over the United States are celebrating the freedom of private equity underwriters to profit handsomely from investing public pension funds.  The NYT reported:

It began last year as a promising push by a few states to require private equity firms that invest on behalf of public pension funds and university endowments to be more forthcoming. But the effort has hit a wall as bills in California and Kentucky intended to shed light on fees and practices at these powerful firms have been either killed or watered down.

One of the bills proposed in California would have required only modest disclosures: the publication of a handful of pages from confidential limited partnership agreements. It was shot down.

Even worse, another private equity transparency bill in the state was recently amended to eliminate disclosures about related-party transactions between private equity firms and the portfolio companies they oversee. Fees paid by portfolio companies to private equity funds ultimately come out of the pockets of fund investors, so more sunlight in this area would have been beneficial.

Billionaire PEUs like Carlyle's David Rubenstein, Blackstone's Stephen Schwarzman, Apollo's Leon Black and KKR's Henry Kravis have carte blanche access to America's Red and Blue political ruling class.  Those elected officials preserved private equity's preferred carried interest taxation for over a decade in direct contrast to public opinion that the super wealthy should not pay a lower tax rate than their gardener or limo driver.

Here's another reason why the public and elected officials should care about the business of private equity, which relies on leverage and financial manipulations to garner outsized returns or cause their affiliate to go bust.  Moody's is a credit rating agency and it had this to say about The Carlyle Group's financial practices regarding affiliate Vogue International, which Carlyle is selling to Johnson & Johnson for $3.3 billion.

Moody's Investors Service, ("Moody's") placed the ratings of Vogue International, LLC (Vogue) under review for upgrade, including the company's B2 Corporate Family Rating and B3-PD Probability of Default Rating.

The review for upgrade is based upon Moody's view that, should the acquisition by Johnson & Johnson be consummated, Vogue will become part of an enterprise with a significantly stronger overall credit profile than if Vogue remains a standalone entity. 

Vogue's existing B2 Corporate Family Rating reflects its modest scale, limited operating history at current sales levels, narrow product focus, and high customer concentration. The rating also incorporates Vogue's very aggressive financial policies including large debt-funded shareholder distributions. Revenues and earnings are vulnerable to changing customer preferences and competitor actions. 

Vogue International LLC (Vogue), headquartered in Clearwater, FL, develops, markets, and sells hair care products marketed as having natural ingredients primarily through mass market retailers. The company is 51%/49% owned by founder Todd Christopher and The Carlyle Group. Revenue for the 12 months ended March 31, 2016 was approximately $319 million.  

Aggressive financial policies brought us more than one asset bubble, which later burst badly.  The business and buying and selling companies becomes the public's business when PEUs are investing public funds.

PEU freedom means the greed/leverage boys are above paying regular taxes and making proper disclosures regarding their fees.   Fireworks both please and divert the attention of the masses.