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.

Rahm Warrants Invite to JP Morgan Board Meeting

President Obama's Chief of Staff received an invitation to speak at JP Morgan's board meeting. The company moved it to Washington, D.C., reducing Rahm Emanuel's travel time to the elite gathering. What might they talk about? Future financial regulation, buying/auctioning TARP stock warrants, the next Fed Chair, and/or donations to Rahm's blue camp.

Warrants are likely high on the list from Jamie Dimon's perspective. Reuters reported:

The 10-year warrants were meant to allow taxpayers to share the upside as banks recover.

Did "share the upside" shift?

A Treasury representative said the government wants to dispose of warrants "in a manner that protects taxpayers."

That sounds like two different aims. The government sold warrants back to smaller banks at 66% of their value. On whose behalf will Rahm Emanuel work?

Given the state of financial products, might the cabal meet next time in Las Vegas? Rahm says it's OK. What happens in Vegas, stays in Vegas. I expect the same outcome from Rahm's JP Morgan talk.

(Note: Rahm Emanuel declined the invitation per advice from White House lawyers)

Carlyle Group Lobbies Against Stricter EU Regulation

Buyout king Robert Easton of The Carlyle Group argued against European Union financial reforms. The Independent reported:

One of the major concerns is over disclosure of company investments. Any private-equity or hedge fund that has €500m (£430m) in funds under management must report detailed information on any of their portfolio companies that turn over at least €50m.

Mr Easton, the Carlyle Group managing director who sits on the disclosure working group, warned that the directive could end up being challenged by member states. He said: "Our starting point is that the disclosure requirements of the draft directive shouldn't even apply, given that each jurisdiction already has its own laws. Indeed, you might find that the required EU disclosures breach rules at local country level."

Mr Easton added that providing detailed information would be costly. "If you were to apply the €50m rule it would significantly increase the cost burden on many, many companies, and that's quite apart from the pressure on the FSA, which would have to recruit an army of people to oversee it," he said.

Easton's excuse is humorous in that a Carlyle sub has software helping hedge funds comply with any new reporting requirements. It's produced by Brussels based FRSGlobal. Can't they update it for private equity underwriters (PEU's)?

Carlyle has the rumored Obama nominee for America's EU ambassadorship in William Kennard. They have two co-chairs of key groups weighing in on financial regulatory reform David Rubenstein led a global study effort, while Arthur Levitt chaired a domestic industry group.

If it were American reform, Carlyle would be a shoe in for a free pass. Europeans may have more intestinal fortitude than PEU dominated Washington, D.C. Where will Brussels land?

Goldman Sachs PR Department to Earn Their Millions

Who knew the whole political range would pick on Goldman Sachs within a day's time? Consider the media personalities with GS in their sights, Paul Krugman, Jon Stewart and Glenn Beck. Add The Telegraph and Rolling Stone to the list. Even Forbes took a shot. The hardest punch came from across the pond.

Did Goldman executives issue a crisis call for media savvy consultants? Did they barricade top management in the bunker housing their proprietary computer trading software? Or did they enter the firm's vault, wading hip deep in gold coins, diamonds and bearer bonds (their 2009 bonus prizes)?

How will they handle their PR problem? Likely, Goldman will slough it off on their lackeys, the United States Congress and the Executive Department. It pays to fund appropriately connected talent, especially talent capable of making inconvenient things (like record profits in the middle of a deep recession) go away. Does it all seem a bit cartoonish?

(HT-EPJ)