Wednesday, June 30, 2010

Obama is Coach K

Candidate Obama stated:

"What's most outrageous is not the morally offensive conduct on behalf of these lobbyists and legislators, but the morally offensive laws and decisions that get made as a result."

President Obama's White House sits in the middle of lobbyist-legislator conduct. NYT reported:

White House officials have met hundreds of times over the last 18 months with prominent K Street lobbyists.

On the agenda over espressos and lattes, according to more than a dozen lobbyists and political operatives who have taken part in the sessions, have been front-burner issues like Wall Street regulation, health care rules, federal stimulus money, energy policy and climate control — and their impact on the lobbyists’ corporate clients.

But because the discussions are not taking place at 1600 Pennsylvania Avenue, they are not subject to disclosure on the visitors’ log that the White House releases as part of its pledge to be the “most transparent presidential administration in history.”

A citizen's group asked Congress to investigate unrecorded visits and e-mails by White House staffers. Change looks remarkably Bush like. A pox on Red & Blue political houses, as both cater to K Street.

LA Business Conference Features PEU's

Carlyle Group co-founder David Rubenstein will keynote the ACG Los Angeles Annual Business Conference, held on September 21 & 22, 2010. ACG stands for the Association for Corporate Growth. Headliners include Mitt Romney, Senator Tom Daschle and Senator Bill Frist. What do they have in common? Private equity underwriter (PEU) ties.

Mitt Romney - Bain Capital

Tom Dashle - Intermedia Advisors, Apollo Group

Bill Frist - Cressey & Company, KKR (via his HCA holdings)

David Rubenstein - The Carlyle Group (which also employs Bill Frist's son, Harrison)

Apparently Tom Daschle failed to communicate his non-lobbying status to conference promoters. They describe him as:

Sen. Tom Daschle, who represented South Dakota in the Senate from 1986 until 2004, and for several years headed the Democratic caucus in the Senate as majority or minority leader. After leaving the senate he had lobbied for healthcare companies and was an active proponent of the Obama health plan.

Proponent? Try designer. Ex-politician PEU's continue remaking America to their advantage, when they're not reshaping the globe.

Carlyle Group Assets Under Management $90.5 billion

The Carlyle Group is back on a growth track, temporarily interrupted by the financial crisis.

January 2009 - $91.5 billion (Kellogg School of Management)

June 2009 - $84.5 billion (PressReleasePoint)

March 2010 - $90.5 billion (PRNewswire)

Carlyle managed $12.5 billion in 2001. The Bush years provided Carlyle tremendous growth. President Obama may have shadow bankers back. Private equity underwriters are winning on all fronts, financial reform, carried interest taxation.

Tuesday, June 29, 2010

Carlyle Group's Loan Auction Moves Half Merchandise

Bloomberg reported:

Carlyle Group, the world’s second- largest private-equity firm, has sold about 750 million euros ($915 million) of leveraged loans in an auction, according to two people with knowledge of the sale. The firm was seeking bidders for a total of 1.5 billion euros of debt.

The auction moved 50% of the product.

Leveraged loans are rated below BBB- by Standard & Poor’s and Baa3 by Moody’s Investors Service. Private-equity firms pay for takeovers by loading a target company with debt and using its cash flow to repay lenders, causing the company’s ratings to fall below investment grade.

Private equity underwriters (PEU's) flip affiliates. Carlyle's cash in continues.

Update: It seems this wasn't voluntary, but driven by Goldman Sachs and hedge funds.

Update 2: It's up to 4/5ths of the merchandise.

BAH Gets Defense Contract

This has to help Carlyle's planned independent offering for Booz Allen Hamilton (BAH):

Booz Allen Hamilton today announced that it is one of nine companies that have been awarded part of a new five-year, $2 billion, multiple award, prime contract from the Defense Technical Information Center (DTIC) to provide Software, Networks, Information, Modeling and Simulation (SNIM) support.
It's nice knowing two of my readers, BAH and DOD, will stay in relationship. The Carlyle Group's great cash in continues.

Chinese Fishery Goes Carlyle

One Carlyle will include China Fishery Group Ltd. The Carlyle Group agreed to invest $190 million into China Fishery. It will buy 113.5 million shares and 26.7 million in warrants. WSJ reported:

China Fishery is an industrial fishing company that fishes mainly in the North Atlantic. Although it sells fish in West Africa, Northeast Asia and Europe, almost 75% of its revenue came from sales in China in the six months ending March 28.

Patrick Siewert, senior director of Carlyle, said in the statement. He said Carlyle will work with the company to build its businesses and "set higher standards in sustainable practices for the industry."

China has a history of delivering toxic products to customers. Research on whale tissue shows toxic risks from fish and mammals higher up the food chain. Ultimate predator Carlyle ignored risk in the past.

How might greed express at China Fishery? Staid SemGroup and Synagro Technologies could be indicators.

Monday, June 28, 2010

BP Energy Trading Reveals over $8 Billion in Derivatives

The Federal Reserve Bank of New York probed Wall Street's exposure to BP, should it declare bankruptcy.

BP's SEC filings indicate nearly $9 billion in derivatives (fair value). That includes $7.8 billion in derivatives held for trading and $1.1 billion in hedges. Over $4.4 billion in trading derivatives are related to 2010 events/conditions with nearly $3 billion in bets on natural gas prices. Over 97% are Level 2 or 3 assets. BP's bets include:

Currency derivatives
Oil price derivatives
Natural gas price derivatives
Power price derivatives
Other derivatives

Recall the razor blade impact of derivatives on Lehman Brothers. When Wall Street lost trust in Lehman's ability to pay, capital calls came in on Lehman's massive derivative exposure. The combination of capital calls, inability to rollover short term financing and imploding asset values sent Lehman to its grave.

While BP is sold as the Titanic, unsinkable, a much smaller energy company went bankrupt over bad energy bets. SemGroup imploded from $3 billion in losses on hedges. The Carlyle Group affiliate claimed ignorance of the energy trading activity, hiring Louis Freeh to investigate the matter. When sued by shareholders, Carlyle's offered puffery as a defense.

The Federal Reserve continues its Diogenes like search for systemic risk. As usual, it is unable to find it in BP or private equity underwriters (PEU's). Where will futures take us? Which derivative course will express in reality? Have financial models caught up? Are they now capable of projecting systemic risk?

As for BP, they failed to manage drilling risks in the Gulf of Mexico. BP energy traders have a similar blot on their record. Will the future look like the past, fall 2008? First Lehman, maybe BP. Uncle Sam could be a BP creditor.

Levitt's Take on Financial Reform

Carlyle Group Senior Advisor Arthur Levitt spoke out on financial reform. His comments included:

On reports that this is the biggest financial reform since the Great Depression ...

“I think that’s ridiculous. Whatever changes were made were made at the margins.”

On who will pay for the reforms ...

“The business community in America is very good at adjusting to regulatory changes. I think that investors and consumers and businesses will absorb some [costs], and the firms that aren’t skillful at adapting to change will absorb more.”

Reform conclusions: it's not major, with most costs passed onto consumers. Arthur should thank Congress for watching The Carlyle Group's back. Private equity underwriters (PEU's) got a free pass. What about Europe?

Senator Dodd Defended PEU Placement Agents

The Securities & Exchange Commission will vote on tighter rules for private equity marketing to public pension funds. The rules attempt to prevent paid political influence in pension fund investments. Private equity underwriters (PEU's) are known for their political connections.

The Carlyle Group and joint venture energy partner, Riverstone Energy, paid $70 million to make a New York pension "pay to play" investigation go away.

During the financial crisis private equity made billions in capital calls on public pensions, already stressed from underfunding. Pensions ponied up, preventing a complete PEU meltdown.

Shadow bankers committed many sins, including excessive leverage. Yet, they received a free pass under the financial reform bill. One architect, Senator Chris Dodd defended the use of placement agents. Bloomberg reported:

In February, Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said in a letter to the SEC that banning placement agents risked eliminating the only “cost-effective way for smaller funds” to compete with bigger rivals in winning contracts to manage pension-fund assets.

The more things change, the more they stay the same.

Carlyle/Riverstone Sell Frontier Drilling for $2.16 Billion

The Carlyle Group's "great cash in" continued with the sale of Frontier Drilling to Noble. The $2.16 billion sale is expected to close by the end of July. FT reported:

Goldman Sachs advised Frontier Drilling on the deal, while Noble was advised by Simmons & Company International, Barclays Capital and SunTrust Robinson Humphrey.
Carlyle's David Rubenstein and Goldman's Lloyd Blankfein found solid ground for this deal. What do insiders know about the future of deepwater drilling?

Carlyle Group's Distribution Payday

Carlyle Group affiliate Insight Communications will sell $400 million in debt. Three quarters or $300 million will be distributed to capital stockholders. Distribution = special dividend.

Carlyle's Booz Allen Hamilton enacted a similar strategy, before declaring a public offering. KKR milked HCA for $2.25 billion prior to their IPO.

The money spew is on for private equity underwriters (PEU's). Congress ensured the PEU regulatory/tax slate is clear and clean. The White House works to make that a global phenomena.

Sunday, June 27, 2010

Next Carlyle Group IPO? Mill Digital Media

The Carlyle Group's next ring of the public register could come via Mill Digital Media. Options for listings include NASDAQ and London's Alternative Investment Market. Mill Digital Media could be valued at £80m in a flotation. Carlyle invested in the firm in February 2007.

ManorCare Quality: Where's SEIU or Gail Wilensky?

The Carlyle Group gave quality assurances when it purchased giant nursing home provider ManorCare. They included establishing a quality committee with former HCFA Chief and ManorCare board member Gail Wilensky. The Service Employees International Union (SEIU) promised to keep an eye on ManorCare's quality. The union later reneged.

The Des Moines Register reported:

ManorCare nursing home in West Des Moines is in trouble. It has been hit with $21,500 in fines for neglect of its residents this year. New admissions have been restricted, and the federal government last month decertified the home, which means it cannot collect taxpayer money for resident care.
Cutting off Medicare and Medicaid payment has management's attention. One might expect ManorCare's Quality Committee or the SEIU to deliver on their promises. So far, both are silent.

What's ManorCare's solution? Have state legislators press their case. Applying political pressure, on that Carlyle is consistent.

As for Gail Wilensky, she was at a Comparative Effectiveness Research forum last week. The National Pharmaceutical Council and America’s Health Insurance Plans sponsored the event. Corporate sponsored health care, it's America's future.

Saturday, June 26, 2010

Geithner Lobbies Europe for PEU's

Bloomberg reported:

The European Union may delay a final vote on rules to regulate managers of hedge funds and private equity firms until September after the bloc’s Parliament and national governments failed to reach an agreement.

The latest clue that globalist financiers are in charge:

U.S. Treasury Secretary Timothy F. Geithner raised concerns about the way the draft law may discriminate against U.S. funds in a letter sent to the EU fiancial services commissioner in March.

Private equity underwriters (PEU's) week just got sweeter.

Friday, June 25, 2010

Congress Sweet to PEU's

Private equity underwriters (PEU's) had an outstanding week on Capital Hill. Consider their wins:

1. Carried interest taxation will not change. WSJ reported:

A bill that would have extended unemployment benefits and taxed the majority of carried interest as ordinary income couldn’t clear the Senate, as a 57-41 vote was insufficient to stop a Republican-led filibuster. Senate Democrats say they’ll let the bill die.

2. Financial reform gives a free pass to nonbank PEU's.

The bill doesn't change much for banks. It changes even less for shadow bankers. Congress catered to their PEU sponsors. Who else will toast their success? Maybe the White House?

Cleveland Clinic Partners with Carlyle Group's Carefx

President Obama held up the Mayo Clinic and Cleveland Clinic as models for quality health care. Both have a laser like focus on quality. That includes innovation.

Private equity underwriters (PEU's) scour the landscape for new things to sell. They salivate over opportunities under Obama's health reform.

Cleveland Clinic's health information technology pioneered business intelligence dashboards. Carlyle Group affiliate Carefx partnered with Cleveland Clinic on this product.

Did Cleveland Clinic check out their business partner? There are numerous quality concerns: Vought Aircraft, LifeCare Hospitals, public pension "pay for play."

Private equity will bleed healthcare. Cleveland Clinic, prepare to be milked.

Update: Carlyle's ManorCare could use the Carefx dashboard in its West Des Moines nursing home

Thursday, June 24, 2010

Carlyle Group & Chinese Taxes

The Carlyle Group may have to pay Chinese capital gains taxes of 10% on its profit from Yangzhou Chengde Steel Tube Co. Dow Jones reported:

"It's obviously not great, but I think it's fair," said one investor at a multibillion dollar private-equity fund with operations across the Asia-Pacific region. "We'll just have to bake [the taxes] into our return calculations."

Oddly, David Rubenstein and company have taken a different strategy on carried interest taxation. Cash rich private equity underwriters (PEU's) fight it tooth and nail.

PEU's Use Live Banks to Buy Dead Ones

Bloomberg reported:

Buyout firms thwarted by regulators from taking over failed banks have found a solution: Acquire lenders that are still in business.
The Carlyle Group has two operating lenders, BankUnited and Hampton Roads Bankshares. The FDIC provided $4.9 billion in subsidies for BankUnited. The Hampton Roads deal requires that Treasury write down its TARP investment.

Private equity underwriters (PEU's) have a new strategy to garner 30% ROI in banking.

Regulators are less likely to oppose investor windfalls as long as government asset guarantees aren’t involved.
If windfalls don't come on the taxpayer's back, a greater burden falls on the customer. Elected leaders see PEU's as America's savior for public infrastructure, banking, health care and education.

For insight into what PEU can do for you, consider a case of Booz.

Carlyle's Impact on Booz

The Carlyle Group purchased Booz Allen Hamilton, the huge government contractor, in July 2008. Carlyle plans an independent public offering, filing with the SEC. The S-1 document shows Carlyle's imprint on BAH.

Interest expense soared from roughly $2 million to $150 million.

Management fees are $1 million per year plus expenses. Also, BAH made a one time $20 million payment to Carlyle for investment banking, financial advisory and other service.

Under two years of ownership BAH paid $290 million more in interest and $22 million in management fees. Their S-1 filing states:

We derived 98% of our revenue in fiscal 2010 from services provided to over 1,300 client organizations across the U.S. government under more than 4,900 contracts and task orders.

For fiscal 2010, we derived 50% of our revenue from cost-reimbursable contracts.

Those costs were passed onto Uncle Sam. Taxpayers ponied up $312 million as a result of Carlyle ownership.

Due to net operating losses, BAH didn't pay income taxes. Their S-1 states:

Our NOL carryforward, which as of March 31, 2010 was $367.6 million
It will take years to work through this deficit at BAH's current levels of profitability. Carlyle milked Booz for more than management fees. It took dividends. BAH took on debt to pay $612 million in special dividends.

Carlyle's milking of Booz shows how private equity underwriters (PEU's) work. Elected officials believe PEU's are the answer to America's ills in public infrastructure, health care, education, banking and underfunded pensions. More than one party is downing the booze.

Tuesday, June 22, 2010

Wayne Madsen on BP & Obama Administration

Wayne Madsen Report cited the Obama administration's strong support for BP's Deepwater Horizon drilling effort. It's 3-4 billion barrels of oil would provide domestic oil supply in the case of a U.S. attack on Iran. That oil is now sloshing around in the Gulf of Mexico, washing into beaches and marshes. Madsen's research has interesting connections to my findings.

He mentions two deepwater drilling sites, Tiber and Macondo, both drilled by Deepwater Horizon.

In September 2009, the Deepwater Horizon successfully sunk a well bore at a depth of 35,055 below sea level at the Tiber Prospect in the Keathley Canyon block 102 in the Gulf of Mexico, southeast of Houston.

During the September drilling operations, the Deepwater Horizon drill penetrated a massive undersea oil deposit but BP's priorities changed when the Macondo site in the Mississippi Canyon off the coast of Louisiana was found to contain some 3-4 billion barrels of oil in an underground cavern estimated to be about the size of Mount Everest.

BP's joint venture partner in the massive Tiber field is ConocoPhillips. Obama's Oil Spew Commission co-chair William K. Reilly controls over $2 million in ConocoPhillips stock. He's on temporary leave from the ConocoPhillips board of directors, but will return after his commission duty. Their report is due to the President by the end of 2010.

Madsen went on to report:

The newly-discovered estimated 3-4 billion barrels of oil in the Gulf of Mexico would cover America's oil needs for up to eight months if there was a military attack on Iran that resulted in the bottling up of the Strait of Hormuz to oil tanker traffic, resulting in a cut-off of oil to the United States from the Persian Gulf. Obama, Salazar, Chu, and Gates green-lighted the risky Macondo drilling operation from the outset, according to WMR's government sources.

Should this be true, it explains why Ken Salazar bailed on the investigative component of his 30 day report. America now has investigative cornucopia on Deepwater Horizon. Will they cordon off undesirable avenues of the investigation?

The spate of Hurricane Katrina investigations proved quantity does not mean quality. The Bush White House conducted an abysmal investigation, not addressing responsibility for patient evacuations or the powerless facility with the highest patient death toll. This casts doubt on the Executive Branch's ability to investigate itself.

WMR learned that BP was able to have several safety checks waved because of the high-level interest by the White House and Pentagon in tapping the Gulf of Mexico bonanza find in order to plan a military attack on Iran without having to be concerned about an oil and natural gas shortage from the Persian Gulf after an outbreak of hostilities with Iran.

BP still has an ongoing operation to drill down to 40,000 feet below sea level at the Liberty field off the north coast of Alaska.

A second Oil Spew Commissioner has BP Alaska ties. Fran Ulmer is Chancellor of the University of Alaska-Anchorage, the beneficiary of over $30 million in donations from BP and ConocoPhillips since 1999. Her boss, UA President Mark Hamilton, sat on BPAmerica's External Advisory Council.

It's a small world for the politically palatable, power elite.

Boston Private Repays TARP, Carlyle Invests More

WSJ reported:

Boston Private Financial Holdings Inc. (BPFH) said it plans to sell 1.1 million shares to the Carlyle Group. It would raise about $6.3 million.

Boston Private, which owns wealth- and investment-management firms, last week also redeemed the final $104 million of equity held by the U.S. Treasury Department under the Troubled Asset Relief Program.

The story didn't mention Treasury's stock warrants. The S-1 cites 8.3 million potentially issuable shares from outstanding warrants, but provides no breakdown of ownership. Other SEC filings indicate Treasury's right to buy nearly 2.9 million shares of Boston Private Financial Holdings, Inc.

The Warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to certain anti-dilution and other adjustments, equal to $8.00 per share of the Common Stock.

It's not clear how the warrant price will be adjusted given Boston Private's recent stock offerings. It's clear BPFH enjoyed government provided capital for nearly two years.

11-21-08 received $154 million in TARP funds
1-13-10 repaid $50 million
6-16-10 repaid the remaining $104.4 million

Here's BPFH spin from Chairman and CEO Timothy L. Vaill:

“We are pleased to have supported the U.S. Treasury’s efforts to stimulate the economy and were able to increase our lending as a result of the capital we received in late 2008. "

Stimulating wealthy, politically connected people? It takes a professional...

Carlyle's $300 Million IPO for Booz

Marketwatch reported:

Booz Allen Hamilton Corp. filed for an initial public offering Tuesday, aiming to raise $300 million in common stock to pay down debt.

The SEC hasn't posted the S-1 on Edgar. I'll comment once they do.

Monday, June 21, 2010

Carlyle Group Monetizing Booz

Rumors have The Carlyle Group taking Booz Allen Hamilton public. It would be the second IPO in the huge government consulting firm's history. WaPo reports the IPO is imminent and could happen next week. On May 27 Booz filed Form D, an exempt offering of securities, with the SEC. This provided Carlyle executives the opportunity to load up on Booz stock pre-IPO.

The Carlyle Group downed Booz in August 2008. They recently were in talks with AT Kearney.

How big will Booz be when it goes public? Will the IPO occur with less than two years of Carlyle ownership? How much in interest and management fees did Booz pay? How will Carlyle's principals profits from flipping Booz?

Carlyle's monetization continues. Look for an S-1 soon if the story is true.

Update: WaPo cited how Booz executives may profit from stock options in a major change of control.

Friday, June 18, 2010

Deepwater Drilling to Reset

The Carlyle Group completed its Cobalt International Energy IPO prior to BP's Deepwater Horizon blowout. Its future could be in jeopardy.

Bloomberg reported:

Smaller Gulf operators, such as Cobalt International Energy Inc., may be swept up in a wave of consolidation as the regulatory landscape tilts in favor of larger firms, said William Herbert, an analyst at Houston-based Simmons & Co.

The cost of deepwater drilling may be feasible only for the biggest energy firms. Bloomberg's list included Exxon Mobil Corp., Total SA, Petroleo Brasileiro SA, Norway’s Statoil ASA and Australian miner BHP Billiton Ltd. Not mentioned were ConocoPhillips, which added significantly to its Gulf of Mexico position in 2009 or any Chinese oil companies, currently on an acquisition spree.

Bloomberg did mention Australia's BHP, the world's largest mining company, as having the horsepower to take advantage of BP's misery.

BHP is capable of spending as much as $20 billion to acquire Gulf assets, including BP project stakes that may come up for sale, Citigroup Inc. Sydney-based analyst Clarke Wilkins said in an interview today.

BHP is a joint venture partner with BP in the Gulf of Mexico, as is ConocoPhillips. The $20 billion BP Gulf of Mexico figure came up for the third time:

1. A 2007 BP America report cited the company's $20 billion investment in the Gulf of Mexico.
2. BP said it would set aside $20 billion in assets to assure its victim escrow fund.
3. BHP is capable of spending $20 billion on Gulf of Mexico assets

The Gulf of Mexico deck will be reshuffled due to BP's haplessness. William Reilly, a ConocoPhillips board member on temporary leave, may end up the de facto dealer. Reilly is co-chair of Obama's Oil Spew Commission.

BP hired The Blackstone Group, a private equity underwriter (PEU), like The Carlyle Group. One thing's for sure, PEU's will be involved.

Thursday, June 17, 2010

China: Carlyle Group's Place to Be

Forbes reported China's private equity growth:

105 RMB-denominated funds accounted for 65 percent or $12.3 billion of the amount raised for China private equity investing in 2009, according to Zero2IPO research in Beijing. The trend continued to gain momentum in the first quarter of 2010, with 14 RMB funds among a total of 17 new private equity funds in China.

The Carlyle Group's David Rubenstein can't say enough good things about China, predicting its rise as a dominant global private equity player. One of his employees echoed the sentiment:

Jonathan Colby, managing director of the Carlyle Group, describes the private equity firm’s new RMB fund initiatives as “the place to be.” Carlyle recently launched a RMB fund of $100 million with China’s large conglomerate the Fosun Group to make high growth investments, and it’s also signed an agreement with a Beijing municipal group to form a RMB-denominated fund in Beijing. The Blackstone Group also has a RMB private equity fund in the works, with the Pudong government and earmarked to make investments in this Shanghai financial and shipping center.

Colby figures that having yuan funds that can invest alongside dollar funds will open up avenues for Carlyle: fewer restrictions on industries, less regulatory oversight and access to listing a portfolio company in China.

Private equity underwriters (PEU's) count on less regulatory oversight and fewer restrictions. They also pit countries against one another, dangling billions in dry powder. How can China and Carlyle scratch one another's back?

Wednesday, June 16, 2010

Triumph Closes on Carlyle's Vought Aircraft

RTT reported:

Aircraft components maker Triumph Group, Inc. (TGI), Wednesday announced the completion of its acquisition of Vought Aircraft Industries, Inc. from The Carlyle Group. The company also expects the acquisition to be accretive to its fiscal year 2011 earnings by $1.10 per share, excluding transaction and integration expenses and expected synergies.

In addition, the company expects to generate annual recurring synergies of approximately $12 to $15 million within the first twelve to eighteen months.

That should generate funding to reimburse the State of Texas for reneging on Vought's employment promises. Unless the Carlyle Group made good prior to deal closing? Highly doubtful.

Tuesday, June 15, 2010

BP Hires Blackstone Group

Reuters reported:

BP has hired investment banks Blackstone Group, Goldman Sachs Group and Credit Suisse Group as advisers, a source familiar with the matter said, without identifying the purpose of the advice.
Private equity firms like Blackstone have stellar political connections, know how to ring fence liability, and have billions in dry powder. They love buying stressed assets on the cheap. Yet, President Obama remains positive.

“I am confident that we’re going to be able to leave the Gulf Coast in better shape than it was before,’’ said Obama.

Financial pirates stand ready to take advantage of the catastrophe. It's a shame they aren't contributing their assets. It wouldn't take much for the man in charge to ask them for help.

Update: BP plans to sell assets and divert funds from three quarterly dividends. BP will also reduce expenditures, the very thing that contributed to its Texas City plant explosion and Deepwater Horizon nightmare well.

Sunday, June 13, 2010

It's a Small World for BP Oil Catastrophe Commission

A second Oil Spew Commissioner works for an organization with BP ties. It's former Alaska Lt. Gov. Fran Ulmer, currently University of Alaska Anchorage chancellor. While she doesn't control over $2 million in stock in ConocoPhillips, a joint venture partner with BP, the University of Alaska has "a long standing research relationship with BP."

Fran Ulmer's boss, University President Mark Hamilton, sat on BP America's external advisory council. The University received a major donation from BP. They cited their charitable gift in BP's 2008 Annual Report: Charter for Development of the Alaskan North Slope:

Approximately $3.2 million was contributed to the University of Alaska Foundation (1/3 of the 2007 total Charter Community Spend Commitment).
Over time that number grows. UA President Mark Hamilton included this in his 2007 report:

Gifts from BP and ConocoPhillips to the university have totaled over $30 million since 1999.

BP loves Alaska. Tony Meggs, BP Vice President Technology said this of Alaska:

Alaska has had, and continues to have, a profound impact on BP's corporate development. Prudhoe Bay has shaped the minds of much of BP's leadership. It has a place in the heart of the company. And the technology developed in Alaska, and the people who deliver that technology, continue to be exported around the BP world and beyond.

I don't know where I'll be, or what I'll be doing, in 2014. But I do feel completely confident that Alaska will still be pushing out the frontiers of technology and helping to create the future of this industry all over the world.

Even in the Gulf of Mexico. Two of Obama's appointments have significant ties to BP. Their work becomes more important, given Ken Salazar's bailing on the investigative component of his charge.

Update: President Obama finished naming Commission members and requested $15 million in funding.

Update 2: Fran Ulmer spoke from Juneau, Alaska before heading to Louisiana for the Commission's first meeting.

Saturday, June 12, 2010

Carlyle Group Gets China Financing for 650 Madison Avenue

The Carlyle Group announced refinancing of 650 Madison Avenue. The press release cited several firsts:

Global alternative asset manager The Carlyle Group and Ashkenazy Acquisitions Corporation today announced that they have successfully concluded a $355 million refinancing of 650 Madison Avenue in New York, NY. This is one of the largest single asset refinancings in New York since 2008.

The mortgage loan was provided by Wells Fargo Bank, National Association and Industrial And Commercial Bank Of China Limited (ICBC), New York Branch. This is the first time ICBC has financed a large commercial real estate transaction in the United States.

Carlyle Principal Andrew Chung said, “This transaction demonstrates that for trophy assets with proven owners, liquidity is available. We appreciate the efforts of our financing sources.”

Chinese banks doing business in the United States? It seems the U.S. Treasury has a lever on the yuan-renminbi currency float issue.

ICBC also focuses on the Middle East, Carlyle's longtime investor backyard. Both have global aspirations and reach. Carlyle co-founder David Rubenstein predicted China will become the world's largest private equity investor. Foreign firms pay up for the right to do business in China.

Recall global finance raced ahead of regulatory and environmental concerns, until their accumulated sins had firms begging for public bailouts. Don't forget China's response. They refused to honor derivative commitments. It seems Carlyle and China have much in common.

ICBC pushes into the U.S. in a large way.

Update 3-17-11:  Chinese banks enter New York real estate in a big way.

Friday, June 11, 2010

On Hold: BP's Dividend to Join Reilly's ConocoPhillips Board Seat

BP's Oil Catastrophe forced two items into hold. The first is William Reilly's board seat at ConocoPhillips, a joint venture partner with BP in the massive Tiber field in the Gulf of Mexico. The second is BP's quarterly dividend.

Reilly announced he would take a temporary leave of absence from the ConocoPhillips board during his term a co-chair of Obama's Oil Catastrophe Commission. He'll still control over $2 million in ConocoPhillips stock, with an ability to impact its future value.

As for BP's dividend, MarketWatch reported:

BP PLC is expected to defer payment of about $2.5 billion in second-quarter dividends by placing the funds in an escrow account until the company can determine its liabilities from the Gulf of Mexico oil spill, the Times of London reported Friday in its online edition, citing people familiar with the situation.
Temporary leave of absence and escrow, these are moves to placate.

Thursday, June 10, 2010

PEU's Meet Behind Closed Doors with Key Legislators

AltAssets reported on the move to tax carried interest as income:

A US bill being drawn up at Capitol Hill to tax private equity underwriters' carried interest as income could decimate investment in the country, according to an industry association.

Representatives from five of the 12 PEC member firms reportedly met behind closed doors with key legislators this week in a bid to overturn the proposed measures. Apollo Management’s Leon Black, Steve Schwarzman of Blackstone, TPG’s David Bonderman, Carlyle’s David Rubenstein, Glenn Hutchins of Silver Lake Partners, along with Wes Edens of non-member Fortress Investments, all met with Capitol Hill officials.

The PEU lobby predicts "the tax hike could reduce US private equity investment by $7bn a year." Heavy hitters tried to mobilize enough Red and Blue Congressional Corporacrats to stave off "carried interest" taxation for the fourth time. The Senate is the battleground, where literally every vote counts.

The White House also caters to PEU's. Consider in person visits made by the aforementioned:

David Rubenstein - 9
Steve Schwarzman - 6
Glenn Hutchins - 2
Wes Edens - 1

That's not counting conference calls. Elected leaders seek PEU counsel.

Update: BusinessWeek reported Rubenstein has Senator Evan Bayh on his side. That's not a surprise, given Carlyle's position as Bayh's #8 lifetime donor.

Wednesday, June 9, 2010

White House Toasts PEU Pass with Carlyle Group's Rubenstein?

Politico reported:

Last month, Elizabeth Vale, a White House liaison to the business community, e-mailed dozens of business leaders, inviting them to join senior White House economic officials Diana Farrell and Austan Goolsbee to discuss the Wall Street reform bill passed by the Senate the day before.
“We are pleased to invite you today to join senior White House officials for a conference call to discuss the historic financial Wall Street reform legislation passed in the Senate yesterday,” the invitation read, adding that the call was off-limits to the media.
The invitation was sent to some of the top financial services and business lobbyists in Washington, including Michael Paese of Goldman Sachs, Scott Talbott of the Financial Services Roundtable and Bruce Josten of the U.S. Chamber of Commerce.
Also on the e-mail list were Business Roundtable President John Castellani, Chamber President Tom Donohue and billionaire David Rubenstein, co-founder of the private equity firm The Carlyle Group.
Did Elizabeth Vale or Austan Goolsbee toast the virtual free pass given to private equity underwriters (PEU's) and sovereign wealth funds? The media wouldn't know. The open and transparent Obama administration shut out the Fourth Estate.

But don't worry, "an industry source familiar with the call said it was a fairly standard legislative update/pep rally." If so, who groped who? Did anybody rifle through taxpayer's drawers?

Update 7-27-14:  NYT noticed private equity's free pass

Morgan Stanley on Entitlements

ZeroHedge reported Morgan Stanley researchers are deeply concerned about America's entitlement spending. They included an appendix on the issue in a report on internet trends.

Morgan has someone in position to do something about the problem. Board member Erskine Bowles co-chairs Obama's Deficit Commission.

Given JP Morgan's ties to many commission members, I wonder what their researchers think?

Triumph Prices Senior Notes for Vought Acquisition

Zach's reported:

Triumph Group Inc. priced its senior notes recently. These notes priced equivalent to 99.270% of the face value and due 2018 aggregate $350 million and carry a coupon of 8.625% per annum.

The proceeds of the offer will be used to fund the acquisition of Vought Aircraft Industries Inc. Although, the Senior Notes will increase the net debt of Triumph, the acquisition will be accretive to earnings by 1 cent in the fiscal year 2010.

On March 23, Triumph decided to acquire Vought Aircraft Industries Inc. from a private equity firm, The Carlyle Group for $1.44 billion including the retirement of Vought debt.

Triumph will pay $525 million in cash and offer 7.5 million shares to Carlyle, which is expected to have a 31% stake in Triumph. The deal is expected to close by July 2010.

Vought owes the State of Texas $34.1 million plus interest for reneging on its promise of 3,000 new jobs. The Carlyle affiliate cut 35 positions from 2004-2009. Roughly 14% of Triumph's new notes would address the $48.3 million (principal + accumulated interest at 5% per year).

Unless The Carlyle Group makes Texas whole. That's not likely.

Monday, June 7, 2010

William Reilly's Temporary Leave of Absence Means More Work for Others

ConocoPhillips 8-K states:

On May 22, 2010, William K. Reilly was appointed by executive order to serve as co-chair of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. Mr. Reilly has informed the Company of his intention to take a leave of absence from his position as a Director of ConocoPhillips when the Commission begins its deliberations.

It was filed May 27, 2010, five days after my post on PEU Report. Mr. Reilly had this in his pocket when challenged by Rachel Maddow on June 4.

The leave may or may not impact Reilly's board pay. It won't remove his control of over $2 million in ConocoPhillips stock or their promising Gulf of Mexico deepwater oil plays.

Reilly said President Obama knew of his conflict, yet continued with the appointment. Was it a move to let oil insiders know "reasonable adults" were in charge? President Obama and his staff aren't saying.

With Reilly on leave, other ConocoPhillips board members will need to step up. How might Richard Armitage or Ken Duberstein contribute their talents? Both have consulting firms, force multiplier Armitage International LLC and The Duberstein Group.

Armitage threatened to bomb Pakistan back to the Stone Age, while Duberstein earned over $1.8 million consulting for Fannie Mae on regulatory issues. That's in addition to Duberstein's Fannie Mae board pay. Currently, the Duberstein Group lobbies for BP, receiving $500,000 from 2009 through Q1 2010.

Duberstein and Armitage work with the American Security Project's "A New American Arsenal," which focuses in part on energy security. With backup like that, Mr. Reilly can focus on the task at hand. Rest assured.

Carlyle Co-founder Distributionstein

Carlyle Group co-founder David Rubenstein noted the return of good times for private equity underwriters (PEU's). He told WaPo:

“We are now seeing a pickup. Valuations in our portfolio companies for the last three quarters have gone up. There has been a pickup in deal value and a pickup in distributions,” back to the people and firms that give private-equity companies money to invest.

The Carlyle Group monetized many affiliates in 2010. This provides checks for Carlyle investors, who like to touch their money once in a while. If salesman Rubenstein is successful, that's a brief touch. Reinvestment is a PEU's lifeblood.

Also, private equity managers might want to lock up "carried interest" profits, hoping to avoid tax increases.

Sunday, June 6, 2010

William Reilly Takes Temporary Leave from ConocoPhillips Board

William Reilly said he disclosed his conflict of interest to President Obama, when the President asked him to co-chair the BP Oil Catastrophe Commission.

Reilly sits on the ConocoPhillips Board. He was paid roughly $250,000 in compensation in 2009 and controls over $2 million in ConocoPhillips stock. ConocoPhillips is a joint venture partner with BP in the massive Tiber field in the Gulf of Mexico.

Rachel Maddow's blog picked up PEU Report's research June 1. She pressed the issue directly with William Reilly on June 4. He stated:

"The president considered it an advantage that I do know the industry and have experience with it."

Odd, President Obama never cited Mr. Reilly's insider industry experience or connections, focusing solely on his EPA and World Wildlife Fund credentials.

As a result of Rachel Maddow's pressing, Mr. Reilly will take a temporary leave from ConocoPhillips board. That might mean less 2010 compensation from ConocoPhillips, however the board could choose to pay Reilly what he would've earned had he not been on Obama's Commission. The Commission report is due by the end of the year.

Consider what Board member Reilly heard at ConocoPhillips annual shareholders' meeting on May 12:

For our company, ConocoPhillips, we don't have a real large presence in the offshore Gulf of Mexico. We get about 1% of our production from offshore in the Gulf of Mexico and most of our emphasis is shown in this dotted oval area and that's where we either have some production or we have exploration effort. Now we've made some good exploration successes here in the past year and we'd like to do appraisal drilling, but we recognize that given the situation and the significance of this incident it is more than likely going to lead to more regulations, rules and deferrals or delays with respect to our effort on exploration and appraising these exploration successes.
ConocoPhillips added to their Gulf of Mexico portfolio in January 2010. Their press release states:

ConocoPhillips will acquire 50 percent working interest in 16 Statoil-operated Gulf of Mexico (GOM) leases and acquire all of Statoil’s 25 percent working interest in five additional GOM leases operated by ConocoPhillips. All of the involved GOM blocks are in the emerging Lower Tertiary play where ConocoPhillips has participated in the 2009-announced discoveries Tiber and Shenandoah.

Reilly will still control millions in ConocoPhillips stock. His Commission decisions will impact the future value of those holdings.

Rachel challenged appropriately, however the system hates publicizing insider connections, political and financial. Mr. Reilly looked distinctly more comfortable in his CBS News interview.

Update: Ken Salazar's abject failure "to thoroughly review" the
Deepwater Horizon blowout makes Reilly's commission more important.

Saturday, June 5, 2010

The State of PEU's

The Economist reported the state of private equity underwriters (PEU's):

“PRETTY much everybody hates us,” admits one private-equity executive.

Odd, PEU's are the solution to America's ills in healthcare, banking, infrastructure, education, green energy and underfunded pensions. The White House loves them. Congress gave PEU's a free pass in financial reform.

Will Senate Corporacrats water carry on carried interest taxation? Stay tuned.

Carlyle Group's David Rubenstein is Saying

Reuters reported:

Carlyle Group co-founder David Rubenstein said on Friday that he expects a greater share of capital invested in private equity to come from sovereign wealth funds, particularly from China.
Rubenstein spoke from the U.S. SuperReturn conference. He dissed hedge funds in his talk:

"They see that when you look across the alternative investment landscape, private equity probably did better during this period of time than many other alternative forms of investment," Rubenstein said, speaking at the Super Return U.S. private equity conference.

He compared the asset class to hedge funds, adding that a lot of those went out of business, causing some people to lose all of their money.

Like Carlyle investor Michael Huffington? Rubenstein failed to mention alternative investment Carlyle Capital Corporation, where investors lost all their money or BlueWave Partners, Carlyle's hedge fund which lost most of client investments. Rubenstein told McKinsey the firm would reenter such risky alternative investments.

Is this Rubenstein political speech or puffery?

people are saying -- private equity isn't as risky as maybe other types of alternative investments."
Private equity underwriters (PEU's) live off sovereign wealth fund and public pension fund investments.

Rubenstein said that public pension funds will also increase their allocations as they try and recoup losses they may have made in other parts of their portfolios.

Losses from other parts of their portfolios? Bloomberg reported Carlyle made over $680 million in capital calls on CALPERS during the financial meltdown. Private equity may have made some of that money back, but it clearly blew a huge hole in pension stability.

PEU's roll the dice for public pensions, which are backstopped by Uncle Sam. One might expect a modicum of oversight. However Congress and the White House gave private equity and sovereign wealth funds free passes in financial regulatory reform.

Rubenstein's greed translated:

Unsupervised China will probably become a huge back door investor in America.

That may give Carlyle a super return, but what does it leave for the rest of the country, especially those without access to champagne round tables?

Update: Rubenstein also said PEU deal sizes were increasing. A contrary opinion was on the future of finance was shared by Pete Briger of Fortress.