BankUnited's Multiple Milkings: $2.3 Billion in FDIC Cash

BankUnited (BU) filed for a $300 million IPO, less than the predicted $500 million amount.  BU's SEC filings show how the bank's private equity owners benefited.  When the original deal closed, with $4.9 billion in FDIC loss sharing, new owners imposed a transaction fee.  The Carlyle Group, Blackstone, Centerbridge and WL Ross charged BU $20 million.

In consideration of the Key Parties conducting the financial and structural analysis, due diligence investigations, and negotiations described above, the Company will pay to each Key Party the following transaction fee:

(a)       to Blackstone a fee of $5,284,360.19

(b)       to Carlyle a fee of $5,284,360.19

(c)       to Centerbridge a fee of $4,146,919.43

(d)       to WL Ross a fee of $5,284,360.19

Each of the above parties has the right to appoint a board member and have a non-voting representative in attendance.

The Carlyle Group's BU holdings are in two funds, DBD Cayman, Ltd. and TGC Holdings, LLC.  Carlyle's holdings in Hampton Roads Bankshares sit offshore in DBD Cayman.  This FDIC approved offshore corporate investments in failed or struggling U.S. banks.  Highlights from the S-1 include:

BankUnited made a $120 million profit in eight short months.

On September 17, 2010, BU declared a quarterly dividend of $14.0 million. In addition, on October 19, 2010, the bank declared a special one-time dividend of $6.0 million.

That's two $20 million bleedings by investors.  Not bad for a year and a half. But it pales relative to Uncle Sam's generosity.

Cash received from FDIC related to business combination, net--$2,274,206,000

At June 30, 2010, BankUnited was one of the most well-capitalized banks in the United States

It's no wonder, with $2.3 billion in FDIC cash.  Investors put up $945 million, roughly one third of initial capitalization.  What did the FDIC get?  Warrants for 10% of the company.  Sheila Bair should be embarrassed.

Update 1-26-11:  BankUnited is expected to go public this week.   PEU Investors are the primary sellers of 26 million shares of stock at an expected price of $23 to $25.  How will Uncle Sam get back $2.3 billion in FDIC cash? They won't.  Others got rich on the deal. 

ESPN aired the University of Miami-UNC basketball game.  Miami's home arena is the BankUnited Center.  Miami President is Donna Shalala, former Clinton official.  The facility opened in 2003.  No name change was necessary given Uncle Sam's generous aid to BankUnited.

Update 2-12-2011:  Who got rich on the BankUnited IPO?  Not Uncle Sam, who put up 2/3 of the initial recapitalization...

Update 3-9-12:  Palm Beach Post finally sniffed out Carlyle and company's sweetheart deal.

America's Powerazzi and Elections

In the week before the election, America's powerazzi do their best to impact elections.  Reds & Blues do their best to tamper with the electorate.  Inflammatory political ads run ad nauseum.  American CrossRoads, backed by professional inflammer Karl Rove, is the newest ditch witch, driving U.S. elections deeper into the gutter.

Blue Bill Clinton tried to broker a deal, where Kenrick Meek would drop out of the Florida Senate race to help independent Charlie Christ.  When citizen wishes aren't what power players want, insiders manipulate the choices.  Clinton's throwing Meeks under the bus is instructive, as Bill dragged Meeks all over the country to help Hillary's Presidential run.

Red Jeb Bush called Charlie Christ self-serving, saying "He's the most ambitious man, I've ever met in politics."  What would Jeb call an ex-Florida governor going on the board of a healthcare company he fined multiple times for improper billing?  When he comes up with a name, Jeb should look in the mirror and enunciate clearly.  Self-serving corporate Jeb earns over $300,000 a year on the board of ethically challenged Tenet Health.

Jeb's appointment came a year after the Bush White House omitted any mention of Tenet's Memorial Medical Center, where 35 patients died after Hurricane Katrina.  Tenet lobbied the White House on The Stafford Act (disaster response) and corporate governance changes in early 2006.  Was any self-serving deal making done on Jeb's behalf?

Jeb's other job, as private equity man for Lehman Brothers, may have impacted George W.'s response in September 2008.  What politician would save his brother's and cousin's firm from financial death in the midst of a closely contested election?  Karl Rove knew such a move would be political suicide for the Red team.

Big boys' money and power games have America at a crossroads.  Staying the poisonous course ensures America's crossbones.

Update 3-9-13:  Jeb will saturate the Sunday morning political talk shows.  Is this a prelude to the next Bush-Clinton Presidential run, Jeb vs, Hillary?

It's a Carlyle Siniverse

The Carlyle Group announced its second purchase of a telecommunications manufacturer.  The two deals include a $3.9 billion buyout of CommScope and a $2.6 billion takeover of Syniverse, totaling $5.5. billion.  Marketwatch reported:

Syniverse provides a full portfolio of mobile roaming, messaging and network solutions to more than 800 mobile operators, cable and Internet providers, and enterprises in over 160 countries.

The Carlyle Group had to do something with their mountains of cash, driven by mass monetizations in the last year.

Carlyle officials referred to Syniverse's role in the "mobile global ecosystem."   That's not your father's ecosystem, which actually involved nature.    Both CommScope and Syniverse have Chinese subsidiaries.  Welcome to Carlyle's siniverse, where words have no meaning, greed is mainstream, China is king and debt is back.

Only in Carlyle's siniverse can a private equity underwriter (PEU) go public and keep its distinctive, competitive advantage (being a private firm). As they did with ecosystem, the siniverse will rewrite "The Goose with the Golden Egg."  Hint:  Carlyle ends up with the gold and fois gras to boot.


Update 10-29-10:  Hawaiian Telecom, Carlyle's failed telecom investment, emerged from bankruptcy, as the PEU made new investments in the space.

Update 3-9-12:   Carlyle's buyout enriched the top two managers at Syniverse.  Higher interest expense, up over 320%, and management fees of $3.7 million helped turn Syniverse into unprofitable territory.

Update 11-30-14:  It's layoff time for Syniverse employees in Tampa, Florida.  I doubt their exit packages are near former CEO's Jeff Gordon.

Carlyle Takes Out CommScope for $3.9 billion

The Carlyle Group will buy out CommScope, a maker of telecommunications equipment, for $3.9 billion.  SEC filings show the deal has committed financing, but does not reveal how much is equity vs. debt.  The DEF 14a, yet to be submitted, may detail the financing mix. 

Bloomberg reported:

CommScope, based in Hickory, North Carolina, is working to revive sales after the global recession hurt demand last year. Carlyle is banking on an increase in demand for fiber-optic networks as phone- and Internet-service providers update their systems to accommodate increasing amounts of video and data. .

Carlyle is in a position to know about growing data needs from affiliate Coresite Realty, a data center provider.  How much does Coresite buy from CommScope?  Only the private equity underwriter (PEU) knows.

As for CommScope's sales, here are the last eight quarters:

1st quarter '09--$742 million
2nd quarter '09-- $783 million
3rd quarter '09-- $750 million
4th quarter '09--$748 million
1st quarter '10--$721 million
2nd quarter '10-- $838 million
3rd quarter '10-- $821 million
4th quarter '10--$730 -780 million (projected)

While revenues bounce around significantly, is there incentive to push revenue into 2011, when the firm is private?

Financial filings reveal other interesting features. CommScope lost a patent infringement lawsuit and faces a judgment of $48 million and an injunction on further sales.  The case is under appeal with U.S. Court of Appeals for the Federal Circuit.

Carlyle is renowned for its political connections. While these aren't supposed to extend to courts, judges generally have a Red or Blue bent.  Carlyle plays both sides of the political divide.  While influence peddling is unseemly to the average citizen, it is a time honored tradition in our nation's capital.  Carlyle co-founder William Conway loves a field tilted in his PEU's favor.

CommScope could benefit from health reform's ERRP, early retiree reinsurance program.  Uncle Sam reimburses 25 to 35% of retiree medical expenses.  Commscope's non-pension retirement expenses are roughly $3 million a year.  I can't imagine Carlyle turning down a free $1 million a year from HHS, but so far, CommScope has not made the official ERRP list..

CommScope has foreign subsidiaries, including ones in China and Mauritius.  Carlyle loves China, as well as offshore tax havens like Mauritius.  It remains to be seen how many Carlyle Cayman Island funds will beneficially hold stock in CommScope.  None of this may be news, given it's now a mainstream PEU world.

BankUnited to Join Bedbugs in Invading New York?

WSJ reported:

BankUnited, the Florida bank acquired last year by private-equity firms, has set its eye on territory far from the Sunshine State: If it has its way, it will take Manhattan.

In about two years, the bank hopes to be in Manhattan, through acquisitions or branch openings; such a move would combine two of the nation's most attractive deposit markets, New York City and Florida. 

First bedbugs, then BankUnited.   Somehow, this seems appropriate for a PEU sponsored bank.  (PEU stands for private equity underwriter)..


Update 10-27-10:  It turns out BankUnited already had a presence in New York, via a $1 billion mortgage securitization.  Who holds liability for any fraud committed by the old BankUnited?  Is that part of Sheila Bari's $4.9 billion subsidy?   Surely, Carlyle & company didn't take on that risk.  That would put a damper on their $500 million IPO, expected to return "some cash" to investors.  As the S-1 is not yet available, details are unknown.  Many see the IPO as potential egg on Sheila Bair's face.

Update 5-31-11:  BankUnited may enter New York via an acquisition, Herald Bank.  

Dubai CDS Still of Interest

Bloomberg reported:

Dubai World in September reached an agreement with creditors to repay debt over five and eight years to allow asset prices to recover as it seeks to maximize the value of its investments. Dubai Holding LLC, which controls Dubai Group and Dubai International, said it aims to reach a similar deal with lenders.

This explains the ongoing interest in Dubai CDS amongst PEU Report readers. Lebanon's Daily Star reported:

Dubai’s debt mountain now totals about $115 billion, meaning the emirate’s flagship firms are likely to be forced into further restructurings and asset sales, according to a Reuters poll of economists and investors.

Dubai’s five-year credit default swaps (CDS), the cost of insuring the emirate’s debt against default, were trading at 385 bps on Wednesday (Oct. 13), down from around 634 points in February, reflecting improving investor confidence.

State-owned firms owe more than $100 billion to creditors, including $30 billion due to mature in 2011-12.

A recently released IMF report spoke to the CDS issue in the Middle East.  It stated:

"Since the summer of 2008, credit default swap (CDS) spreads for GCC sovereigns have generally fallen by 50180 basis points," it said, with Dubai, understandably being the exception. 

The IMF had more to say on the completed restructuring.  According to Zawya:

IMF also said that banks accepted to take a haircut on their loans of $14.4 billion to Dubai World, by extending maturities to 2015 and 2018 at below market rates. Nakheel's loans would be rolled over at market rates.

IMF also said that the government of Dubai's cash injection will allow Nakheel to complete ongoing projects.

The orderly sale of these properties until 2018 is projected to generate enough cash to repay the restructured loans at maturity.

IMF also warned that Dubai faces short-term challenges, while the government of Abu Dhabi has substantial fiscal buffers.

I  take it uncompleted restructurings fall into the short-term challenge category.

Carlyle Group co-founder David Rubenstein said his firm poked around possible Dubai sales.  Rubenstein's other favored method?  Buying distressed debt and getting an equity stake from any default.  It would be difficult for Carlyle to play hardball with Dubai Holding, given their 7.5% ownership by Mubadala Development Co, another UAE sovereign wealth fund.  Might any private equity underwriters have employed Rubenstein's strategy?

Ex-BP CEO Reforms British Education

Lord John Browne of Madingley was surprisingly clueless of BP's operations in his deposition on the Texas City explosion, which killed 15 people.  Despite this clear lack of knowledge and horrific track record, British Prime Minister David Cameron tapped Browne to lead a higher education overhaul.

Browne's penchant for culture has some hopeful that he won't decimate higher education institutions (HEI) like BP.  Lord of Madingley loves Venice, ceramics, pre-Columbian artifacts, papyrology, opera, Chinese terracotta soldiers, contemporary art and artist's lofts. 

Browne's report lists three aims:

1.  Ensure higher education teaching is sustainably financed
2.  Ensure teaching is of world class quality
3.  Higher education remains accessible to anyone

It concludes that higher education financing should be drastically altered, with students "paying more in order to get more."  This means students should pick up where the government cuts, i.e. university operating funds.  Recall BP's 25% cuts at their Texas City refinery under Lord Browne.  After Amoco merged with BP, Browne ordered:

"Reduce business unit cash cost for the year 2001 by at least 25 percent from the year 1998 levels."

The Texas City plant exploded in April 2005.  How long before university operations explode or implode?

The fascinating thing about the HEI report is how Browne positions his current employer, The Carlyle Group, to benefit.  Riverstone Holdings is Carlyle's energy joint venture.  Carlyle is making a large investment in London student housing.  Browne's report states:

Support for living costs available to all through an annual loan of £3,750. No means testing to access to loans for living costs.

Carlyle has a government guaranteed income stream, no risk.  They'll be able to rent their student housing for premium rates during London's Summer Olympics.  Lord Brown is maddeningly slippery.

As for his three aims, I suspect the first two will worsen under any Browne scheme.  His HEI report refers to universities "maintaining minimum quality standards." Lord Browne repeatedly proved he knows nothing of quality.  But he loves money and his boy toys. Carlyle keeps him in both.

Update 7-24-11:  FT noticed Carlyle's strategic investment in 4,000 student beds for British higher ed. It cited how Lord John Browne's report impacted housing prices. "Rental values in Docklands have increased dramatically, with the average one-bedroom apartment rising from £250 to £350 per week in the course of four months at the end of 2010."

Update 2-29-12:  Carlyle's Leap Day luck found the PEU landing three additional student housing sites in London.  They should be up and running for Olympic cash generation.

Update 11-11-12:  Carlyle's  Pure Student Living struggled to fill rooms intended for London college students.