Celebrating Equality in Time of Massive Inequality, Rubenstein Style

Carlyle Group co-founder David Rubenstein's July 4th message encouraged citizens to look at our nation's founding principles as aspirational goals.

And we should resolve that in celebrating the Fourth of July and the Declaration, we are really celebrating where the country should be heading – where everyone can feel and be equal in rights and opportunities – and hopefully will arrive someday soon.

Mr. Rubenstein had the right to meet with Presidents.  Most citizens have not.  Carlyle lobbied for and kept preferred carried interest taxation for over a decade.  Rubenstein's calls are answered personally by sponsored politicians.  His will makes it into federal policy and law.  Citizens wanting the wealthy to pay more taxes or have healthcare be more affordable and less complex are ignored.

We should all have the opportunity to have employed the Chairman of the Federal Reserve and be bailed out with trillions in economic programs.   Instead many citizens worked for private equity affiliates and experienced the kind of massive upheaval that prioritizes interest payments, management fees and sponsor dividends over taxes, wage increases and benefit improvements.

Rubenstein knows Jefferson the idealist was different from Jefferson the industrialist.  The Smithsonian wrote:

It had long been accepted that slaves could be seized for debt, but Jefferson turned this around when he used slaves as collateral for a very large loan taken out in 1796 from a Dutch banking house in order to rebuild Monticello.  He pioneered the monetizing of slaves, just as he pioneered the industrialization and diversification of slavery.

Jefferson declined proceeds from his friend's estate that would've provided funds to free his slaves. Instead he used slaves as collateral on a very large loan.  The Smithsonian piece makes it clear Jefferson's actions were his choice:

A letter has recently come to light describing how Monticello’s young black boys, “the small ones,” age 10, 11 or 12, were whipped to get them to work in Jefferson’s nail factory, whose profits paid the mansion’s grocery bills.

So on July 4th know Thomas Jefferson was a PEU founding father.  That's my interpretation of history, Mr. Rubenstein.

Update 7-5-20:  NYT ran a piece citing the evils of private equity. "In pursuit of maximum returns, such firms have squeezed businesses for every last drop of profit, cutting jobs, pensions and salaries where possible."  The author cited the private equity tax loophole, carried interest.  Foreign Policy had this to say about the PEU boys, "close the loopholes in tax and regulatory law that allow private equity companies to function as predators on the real economy."  Matt Stoller wrote "corporate America fell into disrepair as private equity funds cut much more than fat, carving deeply into bone and muscle."

Update 7-7-20:  A descendant of Thomas Jefferson called for the Jefferson Memorial to be replaced. Frederick Douglas spoke these words in 1852, “To side with the right, against the wrong, with the weak against the strong, and with the oppressed against the oppressor! Here lies the merit, and the one which, of all others, seems unfashionable in our day.”

Update 7-11-20:  "Companies have been stiffing employees, a dynamic that’s getting worse decade after decade, which is tearing our country apart."  Chris Martenson added:  "Wall Street’s mighty siphons assure that nearly all of the Fed’s freshly printed money goes straight into the pockets of the most well-connected players."

Update 5-5-22:  The PEU "public pension savior" narrative may burst if one New York Assemblyman gets his wish for PEUs to reveal their contracts and fee arrangements with New York's public pension funds. 

TPG's Slippery Pre-bankruptcy Move for Cirque du Soleil

Canada’s Cirque du Soleil Entertainment Group filed for bankruptcy protection on Monday, June 29, 2020.  NYPost reported:

On March 30, the entertainment company, which boasts TPG as its controlling shareholder, moved the majority of its worldwide trademarks to a brand-new entity, a senior lender told The Post. The next day, the Montreal-based company — known globally for its flashy acrobatic and aerial acts — missed an interest payment on its $900 million senior debt, setting the stage for its bankruptcy, according to reports and sources.

What value did those worldwide trademarks have when lenders made their original deal with TPG and Cirque du Soleil?

TPG, run by billionaires David Bonderman and James Coulter, bought Cirque in a 2015 deal that valued the entertainment giant at $1.5 billion. TPG walked away with a 60-percent stake, Caisse and Fosun took smaller stakes, while Cirque’s accordion-playing, fire-eating co-founder, Guy Laliberte, grabbed 10 percent, which he later sold to Caisse.

The entertainment company, which got its start with a ragtag team of street performers, was loaded down with a towering $1.2 billion in debt in the deal.

Prior PEU pre-bankruptcy moves included paying sponsors a dividend or giving huge management bonuses.  TPG's move is the latest PEU innovation from the greed and leverage boys.

TPG and other Cirque shareholders — including Caisse de Depot et Placement du Quebec, Canada’s second-largest pension fund, and Shanghai-based Fosun International Ltd. — provided Cirque with $50 million in emergency financing.

Instead of issuing the loan to the company at large, they directed it to the new trademark unit, a move that instantly bolstered their status in bankruptcy, sources said.

As mere shareholders, TPG would have been forced to stand behind existing lenders in a bankruptcy. Likewise, if it had loaned the larger company millions, it would have been forced to take a backseat in a bankruptcy, experts said.

While there’s no indication that TPG’s aggressive maneuvering is illegal, lenders say they could contest the transaction in court because it was done at a time when the company knew it was going to default on its existing debt.

“TPG will use the interim financing to advantage themselves” in bankruptcy, the peeved senior lender told The Post. “It’s very aggressive.”

“Greed is what it is,” said a restructuring lawyer familiar with the issues but not working on the case, who questioned the shareholders’ “right to transfer an asset away from lenders right on the verge of bankruptcy.”

These people are the recipients of  trillions in Federal Reserve support.  Bloomberg reported on April 15th:

The Montreal-based company is discussing a $50 million loan secured by Canadian intellectual-property assets, according to people familiar with the matter. The borrowing would give the company time to explore options including potential government assistance.

Bloomberg noted PEU fear of the public learning private equity affiliates received federal support via  the myriad of federal programs:

After the government broadly excluded private equity firms from the program, dozens found ways to steer around the restrictions, often adjusting governance or ownership arrangements with portfolio companies in sectors including entertainment, fitness, sports and dermatology, the people said, asking not to be named discussing confidential arrangements.

What’s more, some portfolio companies also benefited from indirect taxpayer support after helping scores of related businesses apply for PPP loans, keeping revenue flowing, the people said.

The industry’s secret success in tapping SBA money risks stoking a new uproar in Washington. 

Did Cirque du Soleil get any government assistance after laying off 4,679 employees by video and informing them they have no health insurance via e-mail?

TPG's shifting Cirque du Soleil assets to a newly created entity and making a loan to that entity is hardly an arm's length arrangement, given TPG's 60 percent ownership.  That $50 million loan should give TPG a minor equity stake in Cirque post bankruptcy.

The PEU boys fear public backlash from their taking massive government grants and/or loans.  Why should billionaires fear the common man learning of their ramped up financial support from Uncle Sam?   Because many of us have worked for one of their portfolio companies.  Consider this Cirque du Soleil employee's experience:

Been a technician on a Vegas Cirque show for 15 years.

It was great early on. Back when the company actually cared about performers and staff. They did their best to try to make it actually feel like a family. There were maybe 10 shows max at the time, that they focused on and really paid attention to quality and morale. That’s how the company made billions of dollars.

The company started expanding, getting into various industries that had nothing to do with the shows. Or doing shows that didn’t really fit with what Cirque was known for and good at. Those experiments failed and the company suffered. Every year when upper management would go around to all the shows, we would hear an assurance that the company was going to go back to focusing on the shows. And then it didn’t happen. Again and again. Pay for technicians fell more and more behind market rate. It didn’t even keep up with inflation.

Then Guy sold off Cirque to investment companies. Everything started nose-diving. Budgets for the top-selling shows were cut by 20%, 40%, 60%. We did our best to keep up the shows, but quality went down. Performers were cut. Technicians were cut. Safety was cut. It’s amazing that no equipment had major failures.

The fight begins for control of Cirque du Soleil post bankruptcy.  Axios reported:

Cirque's existing private equity owners, including TPG Capital, offered a reorganization plan whereby they'd retain a 55% equity stake. 

Lenders giving up $900 million in debt is only worth a 45% stake?  That makes TPG's pre-bankruptcy move even stinkier if a $50 million loan gets them 55% of a reorganized Cirque

The greed and leverage boys will continue their PEU ways as long as politicians Red and Blue love PEU.

Carlyle Makes 13x Investment in ZoomInfo, CHK Bankrupt

The Carlyle Group and other ZoomInfo sponsors hold nearly 66% of the company's shares after an early June IPO which offered a mere 12% of ZoomInfo's common stock.  On June 4th ZoomInfo's IPO price was $21 per share.  It closed over $30 higher on Friday.  ZoomInfo is not the video conferencing Zoom, but a subscription provider of B2B sales and marketing intelligence.

It's not clear why the company has a $20 billion value when its S-1 showed the total addressable market for its services as $24 billion.  The $20 billion valuation is 66 times 2019 revenues.

The S-1 had a risk for not using non-GAAP financial measures.  A highly overvalued PEU affiliate using non-standard financial reporting, that's the greed and leverage boys.

It makes for big write ups, sometimes followed by big write downs. What will happen to Carlyle's huge holdings in Chesapeake Energy now that CHK filed for bankruptcy?   Was The Carlyle Group able to convince Robinhood gamblers to invest in CHK?

Market Realist reported:

In the first quarter of 2020, Carlyle Group exited most of its stake in Chesapeake Energy. The hedge fund sold around 864,000 Chesapeake Energy stocks. Notably, Carlyle Group was the largest institutional seller. In the fourth quarter of 2019, Chesapeake Energy accounted for 9.78% of Carlyle Group’s total portfolio of publicly traded securities.  The figure has fallen to 1.3% in the last quarter.

How many Robinhood buyers are behind ZoomInfo's nonsensical $20 billion valuation?  RH's website shows 11,426 Zoominfor shareholders.

The real Robin Hood stole from the rich and gave to the poor.  RobinHood may have enriched The Carlyle Group at the expense of the small investor.  It's a PEU world.

Carlyle Invests in Indian Antibody Producing Pharma

Reuters reported on a late Friday evening:

U.S.-based Carlyle Group Inc has agreed to buy a 20% stake in the pharmaceutical unit of Indian conglomerate Piramal Enterprises Ltd for about $490 million, the companies said in a statement on Saturday. 

The Carlyle Group invested in Piramal which produces 50% of global antibody drug conjugate.  Antibody treatment is one method of curing people from COVID-19.

Carlyle made the deal as the U.S. and numerous states in the South and West hit record numbers of new cases on a daily basis.  The disease has a long way to go to reach herd immunity.

Until then Carlyle affiliates can help test for COVID antibodies (Ortho Clinical), assist with blood plasma collection (MAK Systems), produce antibody drug conjugate (Piramal) and ensure the maximum hospital bill for COVID-19 patients (TrustHCS).

Update 1-11-23:   The FDA reviewed a Piramal manufacturing plant in Kentucky.  It found a number of issues but no details were provided.

Carlyle Flips Discounted Eggplant for Seven Bagger

  
Private Equity News reported:

Carlyle Group has sold UK-based software testing company Eggplant to Keysight Technologies for $330m. The firm scored a seven times return on the exit, a person familiar with the matter told Private Equity News.

The Carlyle Group bought Eggplant in 2016.   PEHub reported in January Carlyle would sell Eggplant for $385 million.  Keysight did not walk away from the deal like Carlyle did to American Express Global Business Travel.  The deal went through at a $55 million discount (14%) to prior news reports.

Carlyle Group to Make High Medical Bills Higher

The Carlyle Group wants to make more healthcare deals, according to co-CEO Kewsong Lee.

Two areas the firm likes include health care and technology.

In early 2020 Carlyle bought Trust HCS and MAK Systems.  A January 13th press release on the Trust HCS deal stated:

WindRose Health Investors, LLC ("WindRose"), the New York-based healthcare private equity firm, announced that it has completed the sale of substantially all of the assets of its portfolio company, Trust Healthcare Consulting Services, LLC ("TrustHCS" or the "Company"), to a healthcare joint venture established by an affiliate of The Carlyle Group and Cannae Holdings. Terms of the transaction were not disclosed.

TrustHCS is a provider of staffing and advisory services for coding, clinical documentation improvement ("CDI"), denial management, and coding education solutions. TrustHCS leverages its team of 500+ professionals to provide best-in-class solutions that enable its clients to accelerate revenue cycle, improve revenue integrity, and reduce operating costs.

Trust Healthcare Consulting Services, headquartered in Springfield, Missouri, is a provider of staffing and advisory services that improve the financial strength of healthcare organizations. The Company's services and oversight improve the reliability, integrity and security of our clients' financial health and enables clinicians, HIM, revenue cycle and clinical documentation improvement leaders gain visibility, insight and control of financial outcomes associated with every patient encounter.

Carlyle's website makes no mention of the Trust HCS deal.  JV partner Cannae's issued the following statement in November 2019:

Cannae Holdings, Inc. (NYSE:CNNE) (“Cannae” or the “Company”) today announced that it has entered into an agreement to participate in a health care joint venture with an investment vehicle advised by an affiliate of The Carlyle Group and another investor with deep health care services experience. The joint venture will focus on acquiring, integrating and operating synergistic health care services companies in the provider and payer space. 

Cannae will contribute its T-System business to the joint venture and Cannae’s joint venture partners will contribute equity capital to enable it to acquire other complementary health care services companies. As part of this effort, T-System has also entered into a definitive agreement to acquire a leading provider of coding and clinical documentation services to domestic health care providers which will be funded by the joint venture. 

The investment vehicle affiliated with The Carlyle Group will be the majority controlling shareholder of the joint venture..

Consider the impact of T Systems for citizens in Savannah, Georgia.

A few months after transitioning to T-System’s RevCycle+® service, Memorial University Medical Center’s revenue quickly increased to the numbers T-System had estimated. And, just a few months later, revenue continued to improve even further to $1,269 per patient visit, from the original baseline of $1,040 per patient visit.

Results

• $24.8 million gross annual revenue increase:

• $259 increase per patient for facility E/M charges\

• $31 increase per patient for facility procedure charges

• $502 increase per patient for observation services charges

A higher level of service was assigned for about 65 percent of the ED patients, and a lower level of service was assigned to three percent. Also, a higher level of service was assigned for about 70 percent of observation cases.

Maximizing healthcare reimbursement is a decades old game.  It got current Florida Senator Rick Scott in trouble when he was President of hospital giant HCA. 

KKR and Bain Capital bought HCA in 2006 and conducted an IPO in 2011.  KKR/Bain continued selling stock in HCA in 2013. 

KKR and HCA pair bid on surprise medical biller Envision but HCA fell away. KKR completed that deal alone.

Carlyle's new joint venture overlaps with surprise medical billing. 

Could T System/TrustHCS be encouraging the use of surprise medical billing? 

While Congress funneled trillions in coronavirus relief to prop up Wall Street it has done nothing on surprise medical billing.  Washington Monthly reported:

The stakes are high in this fight not only because surprise bills are so unjust, but also because it engages the most important long-term issue in health care: rising and unsustainable costs. 

Eliminating surprise billing entirely would save people with employer-provided health insurance approximately $40 billion annually. Compared to the $3.6 trillion the U.S. now collectively spends each year on health care, that is not a large amount. What makes the legislative battle over surprise billing so important is less the savings it could produce than what the fight itself represents: a dry run for broader reform. If Washington cannot deal with a problem so obviously egregious, it is difficult to envision how it could address rising costs more broadly.

Congress decided the PEU boys need that $40 billion more than citizens need relief from unjust practices. 
  

The Guardian reported HCA's recent PEU like strategies.

HCA is currently pushing employees to accept several concessions to pay and benefits, including wage freezes, elimination of 401k retirement contributions, and signaling the possibility of layoffs, with non-union employees already forced to accept freezes to annual wage and salary raises.

HCA received about $1bn in federal coronavirus relief that does not have to be repaid, and over $4bn in accelerated medicare payments.

Moody's recently reviewed HCA and stated:

HCA also has industry leading profit margins and makes significant investments in its key markets in order to drive future organic growth. HCA has a long track record of stable operating performance and strong cash flow. 

Just as Congress prioritized surprise medical billing over fair practices for the common person, HCA places profits over fair treatment of employees.

Meanwhile, private equity firms look to make hay from the Fed and Uncle Sam's cash fire hose.  Carlyle saw China scramble over the coronavirus and bought blood plasma software company MAK Systems in February.  Carlyle affiliate Ortho Clinical received federal money to develop COVID-19 antibody tests, which help with blood plasma treatment (MAK Systems).

How many $1 million COVID-19 medical bills can PEU healthcare make?

What's Wrong with this Picture?

The Carlyle Group's stock closed Friday a mere 13 cents below its mid-December 2019 close. After not asking for financial assistance at least one private equity firm with $72 billion in AUM received federal subsidy.  It later decided it did not qualify and returned taxpayer money.  No word yet on how many private equity affiliates received federal subisidies, which continue to expand.