Carlyle Group Poses for IPO

"Carlyle creates value" dotcom is up and running.  Carlyle provides two levels of disclosure, a lesser one to the public and a much greater level for investors.  The new website is intended for the general public. Carlyle spokesman Chris Ullman shuffled two groups in his comment.

“This is all part of the demystification process.  We’re responding to criticism that we’re opaque. Disclosure and transparency are important, particularly when our investors are public pension funds.”

If Ullman's statement is accurate, the public can expect to read the same reports given to pension funds, including CalPERS, a Carlyle Group part owner.  Chris, when might those be posted?

There are other disturbing stories for Carlyle, Vought Aircraft Industries, LifeCare Hospitals, Synagro Technologies, and Semgroup.

Dealbook missed CalPERS part ownership and Carlyle's massive $681 million capital call on CalPERS during the financial crisis.  Dealbook omitted other Carlyle bankruptcies:

Carlyle Capital Corporation
BlueWave Partners
Edscha
Stallion Oilfield Services
Verari Systems

Recall the Carlyle Group's defense in a SemGroup shareholder lawsuit.  They claimed puffery.  Might their new website have an intended puffing effect? 

Any investor should consider Carlyle's mass monetization and its implications for future earnings.  Research might go beyond Carlyle's co-founders and their good hair.  Are they stand up guys?  Maybe for Mubadala Development Corporation and DBD Investors, but for the general public?  Na.

Update 4-9-11:  Reuters reported "Calpers owns a 5.5 percent stake in the Carlyle Group, which it bought in 2001 for $175 million. In its 2010 investment report, Calpers estimated that stake to be worth $334 million. Carlyle is still a private firm, but it is commonly thought it will seek to go public in the next year."

CNOOC's $2.16 billion Texas Shale Play

Bloomberg stated the CNOOC would by 1/3 of the leasehold acres in Texas' Eagle Ford shale play.  

Cnooc Ltd. will pay $1.08 billion for a one-third stake in Chesapeake Energy Corp.’s Eagle Ford shale project in Texas, in the biggest acquisition of a U.S. oil and gas asset by a Chinese company.

Cnooc, listed in Hong Kong, plans to buy 33.3 percent of Chesapeake’s 600,000 oil and gas leasehold acres in Eagle Ford, the companies said in separate statements. Cnooc will also pay $1.08 billion of Chesapeake’s drilling costs in the basin.

Bloomberg's piece changed between last night and this morning.   It removed language stating Chesapeake would provide all leasing, drilling, completion, operations and marketing activities for the project.  I went to bed thinking China's oil company bought U.S. hard assets.

I awoke to find Bob Pisani on CNBC calling the deal a "capital only" investment, not a sale of energy assets.  Bloomberg added language in this regard.

U.S. regulatory approval isn’t needed for the Eagle Ford stake purchase, Chesapeake spokesman Jim Gipson said by e-mail.

“This deal is completely consistent with what U.S. government has said they would like to see Chinese energy companies do, which is to provide capital into America to acquire minority interests and for American companies to use that capital to go out and develop American oil fields and to reduce oil imports,” McClendon said.

How did CNOOC characterize the deal?

The execution of this project will benefit CNOOC Limited's long term production and reserves growth and should produce considerable returns for our shareholders. 

Exactly how will it benefit CNOOC's reserves?  That question needs answering, preferably from CFIUS.  Given China's commodity and energy buying spree, CFIUS could be very busy.

The government of Chinese President Hu Jintao controls the world’s biggest holdings of foreign-exchange reserves, with about $2.5 trillion, including at least $846 billion of U.S. Treasuries, according to data compiled by Bloomberg.

The Chinese have trillions to spend and they're rapidly buying.

What Will Chicago Sell Next?

Bloomberg reported on $164 million in municipal bonds issued by Chicago for upgrading schools.  Uncle Sam will pick up 1/3 of the interest cost via the Build America Bonds program.  The article provided details on the bond issue.  It added:

Chicago has been fortunate to have built up some cash reserves prior to the economic downturn to draw from.

Those cash reserves came from selling public assets and their corresponding revenue streams.

Moody’s said 21.5 percent of the city’s $3.2 billion general- fund budget in 2010 largely came from reserves from the proceeds of leasing parking meters and the Chicago Skyway, an elevated highway that connects the city to Indiana. 

Mayor Daley went through 75 years of parking meter proceeds in four short years. Hourly parking rates soared.  Rumors have the city considering more asset sales.  Area schools could be on the block.  Rumored interested buyers?  Corporations and the U.S. Military. 

Mayoral hopeful Rahm Emanuel is just the man to do such deals.  Once executed, he'll watch their back.

Update 6-6-25:  Chicago parking has been a lucrative franchise for the investor consortium, grossing $2 billion in revenues.  Moneywise reported:

...with 58 years still left in the agreement, the private investors have already recouped their initial investment. In 2023, the meters generated a record $160.9 million in income, bringing the total income from the start of the deal to $1.97 billion.

PEU Texas Governors Race

Who knew challenger Bill White loved private equity underwriters (PEU's) as much as incumbent Rick Perry?  Governor Perry's use of Texas Enterprise Funds as a cash kitty for Carlyle Group affiliates is well chronicled on this blog.  Bill White's dealings are less known, despite a summer attempt by the Governor to throw mud..

The Houston Chronicle reported:

GOP Gov. Rick Perry on Wednesday accused Democrat Bill White of engaging in profiteering during Hurricane Rita in 2005 by directing a local water authority to award a contract to a company to which he had financial ties.

"Ties" came via White's private equity investment in The Sterling Group's Fund II and affiliate BTEC, which specializes in the refurbishment, repair, and packaging of large gas-fired turbines.

Details on the private equity deal show:

BTEC was purchased by two private equity firms in September 2006. One of them, the Houston-based Sterling Group, asked White to join in its investment in BTEC, according to the White campaign.

In December 2006, White invested about $1 million in BTEC. He reported income of more than a half-million dollars on the investment on his 2007 tax return. 

Why is this 50% return in one year unusual?   Because Sterling never sold BTEC, an act which triggers private equity's biggest profits.

BTEC is still listed as a current holding in Sterling's Fund II.  The first monetization (exit) of a Fund II company came in 2008.

Private equity makes money in other ways, management fees and dividends.  That's one hell of a special dividend bleeding..

Oddly, Perry accused White of unethical behavior in regard to a $1.8 million project.  How does that compare with Rick's TEF shenanigans?  Perry discounted Carlyle's Texas 2010 obligation by that amount or more.

It's a PEU governors race. A decade of greed is upon us.  Private equity is now ubiquitous.  A vote for Red or Blue is a vote for PEU's.


Update:  The Governor's campaign commercial cites his competitor's profitable PEU investment, yet fails to mention any giveaway of state funds.  Gov. Rickly Pear, meet Blight.

Donilon & Duberstein: Fannie Mae's Anti-Regulatory Super Heroes

Tom Donilon's superhero status as White House National Security Adviser has precedent.  He was part of Fannie Mae's dynamic duo, capable of stopping regulatory bullets.  Lobbyist Donilon worked with Fannie Mae's Ken Duberstein to keep Congressional reform wolves at bay. Donilon served from 1999 to 2005, while Duberstein's board tenure ran from 1998 to 2007.  

SEC filings show Ken Duberstein also advised Fannie Mae on regulatory matters:

Mr. Duberstein is Chairman and Chief Executive Officer of The Duberstein Group, an independent strategic planning and consulting company, and is a nominee for election to the Board of Directors. The firm has provided services to Fannie Mae since 1991. During 2003, the firm provided services on an annual fixed-fee basis of $375,000 and will continue to provide similar services during 2004..

Ken garnered $1,875,000 in consulting fees over a five year period.

Both Donilon and Duberstein served during Fannie Mae's long running accounting scandal. Duberstein sat on the committee responsible for overseeing the use of derivative contracts, which Fannie fudged to boost executive incentive pay.  How much did Tom Donilon get in tainted bonus money?  Fannie Mae's 2004 proxy statement revealed Donilon's bonus pay:

2003--$727,020
2002--$600,000
2001--$562,571

Donilon also received $2 million in stock option grants, with performance based on rising Fannie Mae stock prices, artificially inflated by accounting shenanigans.

These bonuses were based on fraudulent figures.  Did Donilon return the tainted incentive awards?  If not, how are Americans to trust someone who would personally benefit from unethical to illegal behavior?

What else did Fannie's SEC filings reveal?

Mr. Donilon’s brother had an approximately 15 percent interest in The Glover Park Group during 2003. Fees and commissions paid to The Glover Park Group in 2003 (net of amounts passed through to other service providers) were approximately $429,000.

A federal investigation revealed the existence of an "arrogant and unethical culture" at Fannie Mae. When CNN can proudly air Eliott Spitzer, Donilon belongs in the Obama White House.  There are no sins too great inside the heady world of power and wealth.  Pragmatism requires they be ignored.

While Senator Richard Shelby (R-AL) denigrates Donilon for his Fannie role, he won't touch Duberstein.  They're fellow Reds.  The Blues have similar standards, however low.  Brookings referred to Donilon and Duberstein in an Opportunity '08 introduction as:

Two of Washington's savviest and best connected figures

I have nothing to add.  It's best to leave any post on the new National Security Adviser on an upbeat note.

(Because of its political intrigue, this was originally created on State of the Division) 

Update 10-11-10: ABCNews did a story on Donilon's dark background. 

Update 2-5-11:  Fannie Mae became aware of its illegal practices in 2003.  Donilon and Duberstein did what afterwards?  They received a report in May 2006, while Ken Dubestein still served on the Fannie board.  "Fannie Mae would not say whether it had shared O.J.C. 5595 with its board of directors."  Gotta cover for Duberstein (Red) and Donilon (Blue).

Buffet Slams Private Equity

Times are tough when billionaires dis each other. Bloomberg reported:

Warren Buffett, Berkshire Hathaway Inc.’s billionaire chairman, said he avoids acquiring companies from leveraged-buyout firms because they focus on “exit strategy.” Buyout firms “don’t know the business,” he said. 

Leveraged-buyout firms is the old name for corporate raiders. 

Private-equity firms pool investor money to take over companies, financing the purchases mostly with debt, with the intention of selling them later for a profit. Blackstone Group LP, with CEO Stephen Schwarzman, is the biggest private equity firm, followed by The Carlyle Group. “We haven’t bought a single company from an LBO operator,” Buffett said.

Private equity underwriters (PEU's) and are in the midst of yet another renaming. Their trade group added "growth capital" to become PEGCC.  It hangs deep in the throat for a reason.

Stock Buybacks, Cash & ERRP

Cash rich corporations are buying back stock to the tune of $273 billion, five times last year's level.  Cheap credit means companies, already flush with cash, are borrowing to fund stock buybacks.  Firms conducting buybacks include:

Hewlett Packard--$10 billion
Pepsico--up to $15 billion
The Washington Post--1.5 million shares in 2010
Chevron--$1 billion
Amerisource Bergen--$500 million

PPACA provides federal funding for corporations via the $5 billion Early Retiree Reinsurance Program (ERRP).  Hewitt Associates estimates the average federal reimbursement will represent between $2,000 and $3,000 per pre-65 retiree per year, approximately 25 percent to 35 percent of total health care costs.  The money is intended to save retiree medical programs, but it comes late in the game.  All five cash-rich companies are on ERRP's dole, Hewlett Packard, Pepsico, The Washington Post Amerisource Bergen and Chevron Mining Inc..

How about firm's completing buybacks?

IBM--$8.1 billion
WalMart-$7.8 billion
Microsoft--$5.8 billion
Proctor & Gamble--$4.6
ExxonMobil--$4.3 billion
Goldman Sachs--$2.3 billion

Two of the above firms are ERRP participants, International Business Machines and The Proctor & Gamble Company.  Seven of the eleven cash rich companies are getting millions in government ERRP subsidy.

Meanwhile, less than 1% of corporate chief financial officers expect to hire new full time employees.  Where will that fungible money land?

Update 1-12-11:  According to a letter sent Wednesday by HHS Secretary Kathleen Sebelius, Department of Labor Secretary Hilda Solis and Treasury Secretary Timothy Geithner, HHS began making reimbursements late last year and as of Dec. 30 said it had paid out about $1 billion.  Let the good times roll!