Tuesday, August 31, 2010

PEU Related ERRP Recipients

Uncle Sam opened his wallet for corporations, unions, schools, municipalities and health care companies. The government has $5 billion for its Early Retiree Reinsurance Program (ERRP). I blogged my hometown and household names getting their share of the federal pie. In reviewing the list of recipients, I noticed firms owned by private equity underwriters (PEU's).

Several Carlyle Group affiliates made the list:

John Maneely
The Hertz Corporation

Two of the three, ARINC and Hertz, are on the sell/take public list. John Maneely's sale to a Russian firm died in the financial meltdown.

Other Carlyle affiliates could benefit via union ERRP participation. Allison Transmission, Vought Aircraft and UCI have union agreements. Carlyle sold Vought to Triumph but its founders hold 5 million Triumph shares worth over $350 million. The Carlyle Group is shopping UCI.

KKR's recipients include:

Energy Future Holdings
Eastman Kodak

San Angelo's federal contribution for retiree health care could be as high as $815,000 over a two year period. How might PEU affiliates compare? Could ERRP help Carlyle or KKR get a higher return on equity? If so, it would make the PEU boys happy.

PEU Sponsored IPOs Top Pre-Lehman Levels

FN reported:

The total value of buyout-backed IPOs priced globally since January has reached $19.7bn across 84 deals, according to data provider Dealogic.

The figure is just over eight times higher than the $2.4bn across eight deals for the same period last year and about double the $9.8bn across 39 deals priced between January and August 2008, the months before Lehman went bankrupt sparking the worst turn of the credit crisis.

One private equity underwriter (PEU) has a number of IPO's in the pipeline. The Carlyle Group's "great cash in" continues.

Monday, August 30, 2010

Bull Market in Speculative Grade Corporate Bonds

Bloomberg reported:

Investors are putting their money in junk-bond mutual funds as yields on U.S. Treasuries fall amid signs that the economy may slip back into recession. Flows into the funds provided money managers with cash to buy new issues as sales this month of speculative-grade company bonds rose to the most on record for an August, said Manny Labrinos, who oversees $1.8 billion of the debt at Nuveen Investment Management.

“The big factor has been all the money that’s been flowing into the sector,” said Labrinos, who is based in Los Angeles. “We’ve been bullish for a while but we’ve still been surprised by the extent to which people have been willing to put money into credit.”

This stuff that wouldn't move during the financial crisis. Uncle Sam primed the pump via PPIP and giving companies huge tax breaks for buying back debt for pennies on the dollar.

Beneficiaries include The Carlyle Group, which profited from debt buybacks, acquisitions and new issuance. NBTY, the huge vitamin/supplement maker, plans to sell $900 million in junk bonds to finance Carlyle's takeover. Credit is back for the PEU boys. (PEU stands for private equity underwriter.)

Sunday, August 29, 2010

Carlyle's DBD Investors Could Refund Texas

The Carlyle Group's Vought Aircraft Industries promised 3,000 new jobs in return for $35 million in state assistance. They cut 35. Governor Rick Perry collected $900,000 before revising the Texas Enterprise Fund contract. While the new agreement remains a secret, Carlyle's founders have the ability to make Texans whole.

Daniel D'Aniello, William (Bill) Conway and David Rubenstein's initials form DBD. DBD Investors V owns 5 million shares of Vought's new owner, Triumph Group. DBD's shares are worth $353 million, roughly ten times what is owed to Texans (without interest).

Will DBD investors make good on their prior agreement? Given DBD's Cayman Islands tax dodging, it's doubtful. I hope David Rubenstein's commitment to give away half is fortune is better than Vought's commitment to Texas taxpayers.

Update 9-16-10 Citybiz List revealed another Carlyle investment vehicle based in the Cayman Islands.

Update 6-1-11:  The Texas legislature supposedly fixed the holes in the Texas Enterprise Fund, ones that allowed Carlyle to skate on their Vought employment promises.  The problem in the narrative:  the 2004 agreement had all the required parameters.  Gov. Perry refused to enforce them.

Update 8-14-11:  Presidential candidate Perry's absurd claim that Vought provided Texans over 29,000 jobs per the TEF agreement remains unchallenged in the media.

Rebuilding After Katrina

Five years ago Hurricane Katrina sideswiped New Orleans, filling it with toxic gumbo. Flood waters inundated area hospitals. Memorial Medical Center lost 35 patients in the storm's hellish aftermath. Memorial's LifeCare unit, lost 25 of the 35 patients.

Memorial Medical Center has not been rebuilt. Tenet Healthcare owned Memorial, while LifeCare, an affiliate of The Carlyle Group, rented a floor in the facility.

What has been rebuilt is LifeCare's balance sheet. However, LifeCare continues to aggressively fight Katrina lawsuits. The company has no facilities in New Orleans.

Tenet Healthcare recently tried to buy Healthscope, an Australian hospital company. They lost to The Carlyle Group. Did either reveal their Katrina nightmares to Healthscope's board? Doubtful.

For two firms involved in Katrina, rebuilding is elsewhere.

Carlyle Group Buys Scalina

WSJ reported:

U.S.-based private-equity firm Carlyle Group L.P. acquired the control of Brazilian company Scalina for 280 million Brazilian reals ($160 million), local newspaper Folha de S. Paulo reported in its Sunday edition.
The newspaper, which quoted an unnamed person close to the operation, said Carlyle acquired a 51% stake in the Brazilian company. Scalina, which produces the local famous panty hose called Trifil, posted a revenue of BRL400 million last year.
A panty hose maker sounds a bit staid. Not so in Trifil's case:

It's Carlyle's fourth deal in Brazil. The Carlyle Group puts its bazillions to work buying Brazilians. Brazil's growing economy, slated to host the World Cup and Summer Olympics, is enticing for this politically-connected private equity underwriter (PEU).
Scalina also sells Scala lingerie in the Middle East, Carlyle's other favorite part of the world.

BrazzilMag reported:
The country that buys the greatest variation of products is Lebanon. Kuwait purchases feminine T-shirts and the Emirates lingerie.
The export manager believes the products with greatest sales potential in the region are underwear. "The Arabs like Brazilian lingerie a lot," he states.
The colours with greatest demand are the basic ones, like black, white and chocolate. Among all products, lingerie is what Scalina sells the most in the Middle East.
Carlyle purchased control of a company with significant growth potential. What might cause an underwear run in the Middle East? How long before Carlyle dresses Scalina up for resale?

Update 7-13-16:  Reuters reported Carlyle has been trying to monetize Scalina for three years to no avail.  Brazilian banks took it in the short hairs having to write down Scalina's loans in a debt restructuring. 

Saturday, August 28, 2010

Bono Opens Pandora

U2's lead singer Bono is a co-founder of Elevation Partners, a private equity underwriter (PEU). Rumors have Elevation Partners investing $100 million in Pandora Media, an online music service boosted by the widespread use of IPhones. Users listening to U2 may enrich Bono in multiple ways, song royalties and Pandora profits.

Who knew the wild sounding, Christian hearted Bono from Gloria days would become a PEU? They're known more for worshiping at the altar of annual returns. Did Paul Hewson open Pandora's box? Someone let the PEU's out. They clearly won't go back in, not voluntarily.

Update 2-11-2011:   Pandora filed an S-1 with the SEC for a future IPO.  Elevation Partners is not on the list of selling stockholders with more than 5% of the company.  Pandora is not a listed affiliate of Elevation, however Pandemic Studios is a prior holding.  Maybe Bono didn't open the box after all...

Update 2-19-12:  Elevation did take a 1.5% stake of Facebook, which nears its IPO.   It looks like over $1 billion in profit for Elevtion, well over a four bagger.  Will Bono write a song about it?

McDonald's of Health Care

Two stories, one political and one business, dealt with comparisons of health care companies to McDonald's. Rick Scott, Republican candidate for governor of Florida, once wanted Columbia/HCA to be the McDonald's of healthcare. Scott pushed the ethics envelope, leaving his CEO slot under the harsh light of improper billing. Columbia/HCA paid over $1.7 billion in fines.

The second story involves Priory Group, a UK rehab and mental health provider. RBS is ready to exit Priory. Bidders for the firm include The Carlyle Group, Bain Capital, KKR, Cinven, Advent International, and Blackstone Group. RBS could fetch $1.55 billion for Priory. Deal Flow Media reported:

One critic even goes so far as to accuse the Priory Group of operating its businesses 'like a McDonald's restaurant' and condemned its 'cynical' commercial drive to sell therapy to the mass market."
Rest assured private equity underwriters (PEU's) will study high margin diagnoses/procedures, replicating them for public consumption. However, they excel at mining government pocketbooks through a combination of purchased influence and strategic acquisitions.

If Rick Scott had to be on the ballot in any state, Florida fits. Former Governor Jeb Bush fined Tenet Healthcare for improper financial arrangements. Jeb later joined Tenet's Board of Directors, a high paying position. Tenet, like Rick Scott, has a history of unethical behavior. Together they could be viewed as the McDonald's of milking payors.

Jeb Bush did issue a statement on Rick Scott's surprise win:

“Yesterday, Floridians selected the Republican candidates who will carry forward the message of limited government, fiscal responsibility and personal freedom. Floridians are looking for strong leaders and responsible solutions and I am confident our party can meet this challenge. I congratulate Rick Scott and the Republican candidates who are answering the call to public service. We must now unite and work together for victory in November.”

It's a mad, mad world. Does Priory treat greediness or white collar crime? Should Carlyle win, would they give Rick or Jeb a discount on treatment?

Friday, August 27, 2010

ARINC Lands New Foreign Military Sales Work

The Carlyle Group's ARINC landed GSA contracts to handle foreign military sales for two aircraft, the C-27J Spartan and C-130J Super Hercules Transport. Given Carlyle's intent to flip ARINC, Uncle Sam's $43 million in orders could help boost any purchase price.

ARINC has a history with foreign military purchases. They procured Russian helicopters for Iraq, at twice the list price. The Russian manufacturer sold gear to America's enemies, requiring a waiver from Uncle Sam to keep ARINC out of trouble.

Kenneth Wainstein oversaw the Justice Department’s role in regulatory mechanisms, such as the Committee on Foreign Investment in the U.S. (CFIUS). In that role Wainstein approved Carlyle's sale of Landmark Aviation and Standard Aero to Dubai Aerospace. While President Bush publicly declared concerns about United Arab Emirates trading practices, privately he approved the Carlyle sale.

Wainstein remained silent after reviewing the Carlyle-UAE deal. However, he spoke nobly regarding penalties over the Russian incident:

"There is a price to be paid for illegally trading with outlaw regimes," Assistant Attorney General Kenneth Wainstein said in a statement.

Wainstein now does "White Collar Defense and Corporate Investigations" work for O'Melveny & Myers LLP. The Carlyle Group could use Wainstein's skills. My guess is they already know one another.

PPIP Benefits Usual Suspects

The federal government put up three quarters of PPIP's capital, in addition to providing below market interest loans. Two private investors, BlackRock and Wilbur Ross, warrant comment.

Wilbur Ross' Sago Mine exploded, killing 12 workers. The same Ross invested in BankUnited, which received a $4.9 billion subsidy from the FDIC. BankUnited is going public a mere 15 months after its purchase by a consortium of private equity underwriters (PEU's). Ross owns two other banks, one with an $800 million FDIC subsidy.

BlackRock defaulted on Peter Cooper Village/Stuyvesant Town, transferring billions in loan guarantees to Fannie Mae and Freddie Mac. Treasury Secretary Tim Geithner smirked while dancing around this fact.

While the government brags on PPIP returns, Uncle Sam enriches people and firms with significant black marks. Projections show the fund could return $6.2 billion on the $22 billion investment over the next nine years. That's a 3.1% return for taxpayers. PEU's expect 30% annual returns, frequently on the government's dime or in safe waters carved out by federal law. Note the imbalance.

Bain to Buy Air Medical Group for Nearly $1 Billion

Two private equity underwriters, Brockway Moran & Partners and MVP Capital Partners, will sell Air Medical Group to Bain Capital LLC. WSJ reported:

Air Medical operates three subsidiaries that work with hospitals and emergency services to provide medical care, including Missouri-based Air Evac Lifeteam, Texas-based Med-Trans Corp. and Kansas-based EagleMed.
Air ambulance services are horribly expensive. How might nearly $1 billion in debt impact Air Medical Group's charges? There is no information on buyout financing, much less profits, as this is a PEU to PEU deal.

This deal has local impact as Shannon Medical Center's AirMed 1 is a Med-Trans chopper. They'll find over time how things change under Bain. Meanwhile, PEU health care deals continue.

Thursday, August 26, 2010

Carlyle's Latest Implosion: Oriental Trading

The Carlyle Group's Oriental Trading declared bankruptcy. It's the tenth failure for the politically connected private equity underwriter (PEU):

Carlyle Capital Corporation
BlueWave Partners
Hawaiian Telecom
IMO Carwash
Stallion Oilfield Services
Verari Systems

Oriental Trading
Oriental Trading was recently in the news for selling cadmium tainted children's jewelry. What happens to product liability cases under bankruptcy?

One might expect Carlyle's huge cash in to help Oriental Trading. Maybe they need funds to support other distressed deals.

In a sick irony, Carlyle affiliate Harrah's got $127 million back from the former owner of Oriental Trading, Terrance Watanabe. Carlyle will push big debt haircuts on others, but was unwilling to cut Watanabe a break.

The company said it plans to slash its debt - estimated at nearly $700 million - by more than 70 percent.
Carlyle will wipe out more than $500 million in debt. Harrah's wouldn't give Terrance a 15% break. Oriental ended up being unlucky in more ways than one.

Update 11-4-12:  Oriental Trading ended up owned by KKR and a smattering of other debt holders.  KKR and company sold Oriental Trading for a double to Warren Buffet's Bershire Hathaway.

Bipartisan Offshoring

The Dallas Morning News blistered the Wyly brothers for their offshore financial activities in The Cayman Islands. The Caymans are home to other interesting investors.

Halliburton's KBR had 21,000 employees in their Cayman based subsidiary. Dick Cheney ran Halliburton from 1995-2000.

ShoreBank had a private equity division, ShoreCap International, in the Caymans. ShoreBank specialized in mircofinance. ShoreCap garnered a 23% return in 2007. ShoreCap launched its second fund for microfinance investment in 2010. This new fund is incorporated in Mauritius, another tax haven.

While the Wyly's and Dick Cheney are on the Red team, ShoreBank has solid Blue credentials, including relationships with the Obama's. The Dallas Morning News stated:

No one likes paying taxes. But we all sure enjoy the paved roads, safe food, clean water and national security that our taxes provide.
Does finding a complex scheme designed solely to avoid taxes make you brilliant? Or a parasite?
Brilliant, parasitic, bipartisan private equity underwriters (PEU's) and their sponsored politicians.

Update 5-12-14:  The Wyly brothers were found guilty of fraud with their offshore trusts.

Wednesday, August 25, 2010

Carlyle Can't Make Bank Deals Work

The Carlyle Group's Olivier Sarkozy spoke to Bloomberg about bank acquisitions. He stated Carlyle had not been able to make the numbers work on buying failed banks since their BankUnited deal with the FDIC. Carlyle is one of many private equity underwriters (PEU's) in BankUnited. The FDIC gave $4.9 billion in subsidy on BankUnited.

Is that the difference in making Carlyle's numbers work, FDIC subsidies? Olivier Sarkozy didn't elaborate, but his PEU has a history of lining up at the federal till.

Tuesday, August 24, 2010

The Carlyle Group: LifeCare's Katrina Anniversary

The SunHerald reported:
The fifth anniversary of Hurricane Katrina is a time for remembering those whose lives were lost in that most brutal storm, for appreciating what was accomplished since 2005.

Weeks before Hurricane Katrina made landfall, The Carlyle Group purchased LifeCare Hospitals, a long term acute care hospital provider. Consider the history.

August 11, 2005-- The Carlyle Group closed on the purchase of LifeCare Hospitals from GTCR Golder Rauner.

August 29, 2005-- Hurricane Katrina strikes. Twenty five patients died in the LifeCare Unit within Memorial Medical Center before officials evacuated the facility.

August 13, 2010-- LifeCare's 10-Q states:
"At the time of Hurricane Katrina, we operated an 82-bed facility in New Orleans located in Memorial Medical Center. We are currently defending ourselves against certain Hurricane Katrina related lawsuits and matters under review by the Louisiana Patient Compensation Fund. We are vigorously defending ourselves in these lawsuits."
What did LifeCare do during the five year period? First, it entered a secret legal settlement with Tenet Healthcare over damages/liability from Hurricane Katrina. Second, it repurchased LifeCare debt at a deep discount, garnering a stimulus tax break. Third, it invested in joint venture with Select Medical Corporation. Fourth, it conducted sale-leasebacks with Health Care REIT on three LifeCare properties.

LifeCare has been busy with financial machinations, while vigorously defending lawsuits. Remember this when government says private equity underwriters (PEU's) are the balm for America's financial pain.

Monday, August 23, 2010

PEU's Court McKechnie Aerospace

McKechnie Aerospace's current owners, JLL Partners, are ready to monetize their affiliate. JLL paid $856 million for McKechnie in 2007. Sources say the private equity underwriter (PEU) wants more than $1.2 billion from interested parties, The Carlyle Group, Blackstone and GS Capital Partners.

A 50% gain in less than three years would be great for a 2007 private equity investment, given the frothy prices paid between 2006-2008. Apparently, commercial & military aerospace parts are an attractive market segment. How much of McKechnie's revenue and profits come from Uncle Sam, directly and indirectly?

Sunday, August 22, 2010

Everywhere, Anywhere: PEU's

Just as the fish doesn't know it's in water, America is yet to realize the pervasiveness of private equity influence.

How ubiquitous are private equity underwriters (PEU's)? Turn over an ex-politician rock and odds are you'll find a PEU. ShoreBank, the world's best known community development bank, had microlending in 11 countries before it failed. It also had ShoreCap International, a private equity division expecting 12-15% returns per annum. Who knew microlending offered that kind of ka-ching?

Graduating MBA's migrated to PEU's in droves. Dow Jones reported:

Figures from Harvard show that 11% of its most recent crop of MBA graduates went to work in private equity, the lowest percentage since 2005 and down from a peak for the decade of 17% in 2008.
Some MBA's have famous last names, Frist, Axelrod. When the Blues are in as deep as the Reds, PEU's are ubiquitous. Greed infects corporate board rooms as well as our hallowed halls of government.

Update 10-26-10  Carlyle Group co-founder David Rubenstein spoke to this at SuperReturn Middle East.  He said, "The industry has gone mainstream. Buyout firms and their investors have deepened relations with government, media, consumer and environmental groups, rather than focusing exclusively on returns."

Carlyle Group Sub Reaches Tentative Agreement with UAW

United Auto Workers (UAW) representatives in Fairfield, Illinois reached tentative agreement with Airtex Products, a division of United Components, Inc. (UCI). UCI is owned by The Carlyle Group, a private equity underwriter (PEU). Carlyle is shopping UCI as part of its "Great Cash In."

The UAW's Richard Trumka and Carlyle's David Rubenstein have direct access to the White House. How are the two leaders involved in this negotiation? Is either one pulling the strings from afar?

Saturday, August 21, 2010

Shorebank's Shadowy PEU

Defunct ShoreBank had a private equity division, ShoreCap International. An overview stated:

ShoreCap International Ltd. is an international private equity company seeking to invest in small business banks and regulated microfinance institutions in countries with developing and transitional economies. Founded in mid-2003 with $28.3 million in capital commitments, ShoreCap’s goal is to support the growth of development finance institutions in Africa, Asia and Eastern Europe. After more than three years of operations, the company has invested / committed nearly $14 million in 11 financial institutions located in Bangladesh, India, Kenya, Cambodia, Armenia, The Gambia, Mongolia, Tajikistan, Uganda, the Philippines, and Afghanistan.
ShoreBank started ShoreCap International during the Bush years. His reign was good to private equity underwriters (PEU's), at least until the very end. However, Shorebank ended up government subsidized, like Bush's TARP.

ShoreCap was created by ShoreBank Corporation, a $1.7 billion asset U.S. community development bank holding company with over 30 years experience in building sustainable development financial institutions. In addition to its own regulated banking operations, ShoreBank has been a leading provider of technical assistance and capacity building services to financial institutions in developing economies around the world. ShoreBank is a $2.5 million investor in ShoreCap and runs the management company which oversees investment activities.
ShoreCap's minimum investment size is $500,000 and the firm has a targeted rate of return of 12-15% per annum. Who knew microfinance spun off those kinds of returns?

ShoreCap's investor list, other than ShoreBank, included:

ABN AMRO Bank, the Asian Development Bank (ADB), BIO, Calvert, CDC Group, the European Investment Bank (EIB), the Evslin Family Foundation, Finnfund, FMO, Ford Foundation, Gatsby Charitable Foundation, the International Finance Corporation (IFC) and the Skoll Foundation.

Interesting, especially given the mix of Wall Street firms and private foundations that banded together to take over ShoreBank's deposits.

ShoreBank promoted ShoreCap International's sister relationship with ShoreCap Exchange.

ShoreCap Exchange is a not-for-profit company which provides technical assistance and knowledge networking services to all ShoreCap Investees. Prior to investment, ShoreCap Exchange conducts an in-depth needs assessment of the institution and prepares a comprehensive technical assistance plan. Working with local management, ShoreCap Exchange then oversees implementation of the plan by offering a choice of TA providers and grant funding to help pay a portion of the cost of the services. In many cases, it will be ShoreBank’s own senior staff that will assist Investees in achieving their expansion and development aspirations.

The nonprofit mobilizes grant funds on behalf of private equity affiliates. ShoreBank senior staff provide skilled management to the table in their private equity role.

How do PEU annual management fees and special dividends play out in microfinance institutions? Their annual report doesn't say. However, it did boast of a 23% rate of return.

Update: ShoreCap International's website remains under revision, however ShoreBank International put out a statement.

Friday, August 20, 2010

Failed ShoreBank's Mauritius PEU

Shorebank, a large community oriented bank failed. The FDIC press release stated:

The FDIC entered into a purchase and assumption agreement with Urban Partnership Bank, Chicago, Illinois, a newly-chartered institution, to assume all of the deposits of ShoreBank.
The newly chartered institution is backed by Wall Street firms and large foundations. The FDIC will subsidize the buyout:

The FDIC and Urban Partnership Bank entered into a loss-share transaction on $1.41 billion of ShoreBank's assets. Urban Partnership Bank will share in the losses on the asset pools covered under the loss-share agreement.

Goldman Sachs, JP Morgan, Morgan Stanley, Wells Fargo et al will get a $368 million subsidy from the FDIC. Wall Street's latest run on the government is galling in and of itself.

However, in looking for SEC filings on Urban Partnership Bank or ShoreBank, I found a ShoreCap II Ltd., a private equity fund incorporated in Mauritius. Minimum investment is $250,000 for the $55.5 million fund. It's address is:

2230 S. Michigan Avenue
Suite 200
Chicago, IL 60616

A number of Shorebank subsidiaries share this address:

Center for Financial Services Innovation-the nation’s leading authority on financial services for underbanked consumers.

National Community Investment Fund-an independent charitable trust advised by ShoreBank Corporation that invests in banks, thrifts, and credit unions that generate both financial and social returns.

ShoreBank International Ltd.- the for-profit international advisory subsidiary of ShoreBank Corporation. ShoreBank International does not conduct banking operations but rather offers a broad range of advisory and financial services in its core communities of practice - small business finance, microfinance and housing finance.

ShoreCap Exchange Corporation-a nonprofit capacity building company supporting financial institutions in the development finance field.

ShoreBank, the defunct institution, uses the same street address with no suite number.

Let's be clear, private equity is never mentioned by ShoreBank or its subsidiaries. Mauritius did not make ShoreCap International's client list. Yet, a $55.5 million Mauritius-based private equity fund was launched from ShoreBank's offices. The private equity fund's President, Franklin Kennedy, is a ShoreBank executive.

I smell a private equity underwriter (PEU). Given ShoreCap II's three notice of exempt offerings, does Chicago have an Ugland House? Oddly, ShoreCap International is incorporated in the Cayman Islands.

Aside: Ellen Seidman, ShoreBank Executive Vice President, joined the failed bank in June 2010. She recently appeared at Tim Geithner's confab on housing finance reform. MarketWatch quoted her hours before the FDIC announcement. I take it Ms. Seidman is one of the retained executives that had nothing to do with ShoreBank's implosion. Did she go there knowing that? Seidman is now officially aligned with Wall Street interests.

Uncle Sam Stimulates Carlyle Group Affiliates

Two Carlyle Group affiliates, Nielsen and LifeCare Hospitals, benefited from the stimulus bill, specifically Senator Max Baucus' provision creating a tax break for firms buying back debt. WSJ reported:

The break will allow companies restructuring debt to defer possible taxes for as long as five years, then pay the taxes over the next five years.

The provision gives "businesses in many sectors a lifeline to avoid bankruptcy," said a spokeswoman for Mr. Baucus.

It was projected to cost the government $42 billion over a three year period. A law firm summarized this provision:

Most private equity investments are structured in a manner that will allow a reacquisition to be eligible for the new debt buyback provision.

The Carlyle Group repurchased debt of Nielsen in 2008. Nielsen's S-1 indicates fair value of the debt at 12-31-08 as 68 cents on the dollar. IPO proceeds will retire the debt, now valued at 97 cents on the dollar. Do they ring the tax break register twice, once for Carlyle and once for Nielsen?

Carlyle affiliate LifeCare Hospitals bought back debt in 2008 for 39 cents on the dollar. That rose to 52 cents on the dollar in 2009. LifeCare's 10-K states:

During the year ended December 31, 2009, we repurchased $11.2 million of our outstanding senior subordinated notes for $5.8 million. This resulted in us recording a $5.2 million gain, net of the write-off of $0.2 million of capitalized financing costs, on the early extinguishment of this indebtedness.

During the year ended December 31, 2008, we repurchased $16.5 million of our outstanding senior subordinated notes for $6.5 million. This resulted in us recording a $9.5 million gain, net of the write-off of $0.5 million of capitalized financing costs, on the early extinguishment of this indebtedness.
Carlyle had LifeCare's $9.5 million gain in the bag when Senator Baucus offered his stimulating gift. Max Baucus, bag man for private equity underwriters (PEU's).

Update: Carlyle's Freescale purchased $85 million of discounted debt before cramming down debtholders via a restructuring. Freescale turned $2.85 billion in unsecured debt into $924 million of priority loans. Freescale gave investors 32 cents on the dollar and got a tax break to boot.

Update 2: Uncle Sam stimulated Blackstone, which refinanced,reduced or extended around $52 billion in debt across its portfolio companies.

Thursday, August 19, 2010

PEU's Target Aerospace & Defense

Fresh off my report on Carlyle Group affiliates Booz Allen Hamilton and ARINC garnering Army modernization contracts, Dealbook says private equity underwriters (PEU's) circle three defense firms. They are:

McKechnie Aerospace
Space Systems/Loral
Naval Division of Northrup Grumman
While PEU's hate paying taxes, they love Uncle Sam's wallet.

Good Timing for Healthscope to Go Private

Healthscope CEO Bruce Dixon waxed on the advantages of being a private firm. One of those is aggressive growth outside the public eye. The Australian reported:

Mr Dixon said there were obvious constraints for publicly listed companies, such as the requirement to provide continual financial updates, that would not apply under a private equity model.
"It's good timing for the group to go private and be off the front pages for a while, while we try to grow," he said.
"The benefit of private equity is . . . you can fast-track things without upsetting investors."
Mr. Dixon should call Boeing or SemGroup investors for a reference on private equity's track record off the financial pages. The Carlyle Group's Vought Aircraft Industries upset Boeing by gunking up 787 Dreamliner production. SemGroup went belly up from bad energy bets, which weren't listed in their SEC filings.
Healthscope had a good year as a public company.
Healthscope has reported a full-year profit of $99 million, up 37 per cent, on the back of continuing strong demand for private hospital services. Group revenue rose 11.5 per cent to $1.84bn.

It won't take long for private equity to eat up Healthscope's profits through dramatically higher interest expenses, annual management fees and special dividends? Carlyle and TPG will finance the deal with $1.5 billion in equity and $1.2 billion in debt.
As buyers intend to retain management, Dixon must sell the deal. The irony is twofold. One, Dixon's big payday will come when Healthscope goes public again. And two, Carlyle co-founder David Rubenstein believes all major private equity underwriters (PEU's) will go public in 2-3 years. Is this more Carlyle puffery?

Update 4-22-14:  Carlyle plans to flip Healthscope one of three ways.  It looks like a double for Carlyle.

Carlyle Group Funds Luxury Trips for CalPERS Employees

The LATimes reported that private equity underwriters secretly flew CalPERS employees by private plane to luxury destinations.

Court filings reveal a culture at CalPERS where it was common for large private equity firms such as Yucaipa, the Carlyle Group and Oak Hill Capital Partners to fly CalPERS investment staff around the country and the world, sometimes for what were described as "one on one" strategic meetings.

In addition to the travel, senior portfolio manager JonCarlo Mark testified that he has accepted personal gifts from financial firms and insiders paid by such firms to help them secure CalPERS business.
The Carlyle Group has a history of pension fund pay to play. The LATimes failed to note that CalPERS is part owner of the Carlyle Group, a private equity underwriter. Mubadal Investment Corp, a United Arab Emirates sovereign wealth fund (SWF), also owns a chunk of Carlyle.

Guess what three groups are rolling the dice for big returns? Pension funds, PEU's and SWF's. The same group got sweet treatment in Chris Dodd's financial reform.

Wednesday, August 18, 2010

GM's IPO to Benefit Private Owners

General Motors S-1 indicates all it will receive none of the proceeds from the sale of common stock. Potential beneficiaries are GM's current owners:

United States Treasury-- 304 million shares
Canadian Government-- 58 million shares
United Auto Workers-- 102 million shares
Motors Liquidation Company (old GM)-- 141 million shares

It remains to be seen who sells and for how much. The new GM will benefit from its Class B preferred stock offering. The old GM claims it has zero value, yet it controls 141 million shares of new GM.

The IPO will occur under the PEU leadership of CEO Daniel Akerson. PEU stands for private equity underwriter.

Carlyle's R2-G3 Winners: ARINC & BAH

Two affiliates of The Carlyle Group, Booz Allen Hamilton (BAH) and ARINC, will help modernize the U.S. Army. BAH won a spot in 2009, while ARINC just received a prime contract.

Carlyle is taking Booz public and shopping ARINC. Will Uncle Sam help The Carlyle Group get better prices? We'll see.

Update: Carlyle's divisions have competition from URS, which also was awarded an indefinite delivery/indefinite quantity contract by the Department of Defense (DoD) to support the U.S. Army Communications-Electronics Command's (CECOM) Rapid Response Third Generation (R23G) program. Senator Bill Frist sits on the board of URS.

Tuesday, August 17, 2010

PEU's Ring Multiple Registers on Nielsen

The Carlyle Group, Kohlberg Kravis Roberts, Blackstone, Hellman & Friedman, AlpInvest Partners, Thomas H. Lee Partners and Centerview Partners will take Nielsen public in a $2 billion offering. The S-1 filing reveals interesting information. While other journalists point out executive compensation, I'll focus on a few key facts and how private equity underwriters (PEU's) plan to profit.

1. Since taking Nielsen private in 2006 the company has not had a profitable year.

At December 31, 2009 and 2008, the Company had net operating loss carryforwards of approximately $1,588 million and $1,679 million, respectively, which will begin to expire in 2010, of which approximately $993 million relates to the U.S.

2. PEU sponsors loaded Nielsen with debt, over $8.5 billion. Their $14.6 billion balance sheet has $7 billion in goodwill.

The fair value of Nielsen's debt was 68 cents on the dollar in 2008. It rebounded to 96 to 97 cents on the dollar for 2009-2010.

3. Nielsen paid its sponsors $47 million in management/advisory fees from 2006 through the first half of 2010.

4. Nielsen paid out $220 million in severance costs for jobs terminated from 2007-2009.

Company continues to execute cost-reduction programs by streamlining and centralizing corporate, operational and information technology functions, leveraging global procurement, consolidating real estate, and expanding, outsourcing or off shoring certain other operational and production processes.

5. The company holds $117 million in derivatives, specifically interest rate swaps.

They expect to recognize approximately $60 million of pre-tax losses from accumulated other comprehensive loss to interest expense in the next 12 months associated with its interest-related derivative financial instruments.

6. Sponsors will receive $103 million in proceeds from the IPO (in connection with the termination of management/advisory agreements).

7. $1.56 billion IPO proceeds will be used to buy back $1.47 billion of outstanding debt. That's 106 cents on the dollar. Much of the debt is held by PEU sponsors.

At June 30, 2010, $527 million of the senior secured credit facilities and $22 million of senior debenture loans were held by the Sponsors and their affiliates. Of the $549 million of debt held by the Sponsors and their affiliates, Kohlberg Kravis Roberts & Co. and their affiliates held $236 million, The Blackstone Group and their affiliates held $198 million and The Carlyle Group and their affiliates held $115 million.

85% of sponsor held debt was purchased in 2008, a time of deep discounting.

PEU's have multiple ways of cashing in on affiliates. Nielsen's register ringing will be heard throughout the world.

Update 3-10-13:  Oddly, Nielsen is selling its Expo Business, likely to a PEU buyer.  

Zalmay Khalilzad Goes Boarding

RAK Petroleum appointed Dr. Zalmay Khalilzad to their board of directors. Khalilzad is former U.S. Ambassador to the U.N., Afghanistan & Iraq.

RAK Petroleum has oil interests in Oman, the United Arab Emirates and Tunisia. It also holds 30% of DNO International, an oil and gas firm with operations are in the Kurdistan Region of Iraq and Yemen.

Originally, Khalilzad was to join the DNO board, but he respectfully declined. Who was paying attention? Zalmay's friends.

Khalilzad Associates advises "clients at the nexus of commerce and public policies" from 1001 Pennsylvania Avenue, Suite 600. Global greed master The Carlyle Group holds two floors at the same address. While it's a fourteen story building with many tenants, how many are politically-connected profit takers?

How many are on the lineup for the 2011 World Leaders Symposium on the SilverSea's Silver Wind? Headliners include Carlyle Group Senior Counselor James A. Baker, III and Zalmay Khalilzad. The ship sails from Amman, Jordan, eventually docking in Dubai, United Arab Emirates. The customized travel event runs from December 29, 2010 to January 12, 2011. Get your tickets now.

Monday, August 16, 2010

Harvard Management Company Sells Israeli Stocks

Ynet reported that Harvard Management Company no longer owns any Israeli stocks in its publicly reported portfolio. It sold:

Check Point
HMC said the move came from Israel's changed designation and subsequent portfolio rebalancing. Speculation involves conflict between Israel and Iran. Larry Summers or Bob Rubin might know whether such speculation has any basis. Divestiture is in the air.

Nielsen IPO up to $2.01 billion

Reuters reported investors expect Nielsen's independent public offering to garner over $2 billion. That's up from a prior target of $1.75 billion. The Carlyle Group's "cash" in grows.

Update 1-26-11:  Nielsen's IPO  raised $1.6 billion..  Did PEU's bleed the difference in special dividends over the last five months?

Joint Ocean Commission's Co-Chair

The Joint Ocean Commission Initiative announced a new leadership council in July. John Podesta, the man who gave President Obama crisis management advice on the BP oil spew, is a member. He joined the Commission in July.

Co-chairs are Norman Mineta, former Secretary of Commerce and Secretary of Transportation, and William Ruckelshaus.

Mr. Mineta is Vice Chairman of Hill & Knowlton, a premier worldwide communications consultant. Mineta sits on the board of shipper Horizon Lines and AECOM Technology. Mineta's 2009 board pay is as follows:

Horizon Lines LLC- $115,487
AECOM Technology- $109,750
Many citizens would love to have Mineta's part time board pay of $225,000, but there's more. He holds 22,630 shares of Horizon Lines. At $4 per share Mineta's holding are valued at $90,000 .

Horizon Lines
Horizon Lines is a Jones Act shipper. The Carlyle Group purchased Horizon Lines in 2003 from John Snow's CSX. Carlyle flipped Horizon within 18 months, selling Horizon to CastleHarlan. CastleHarlan took the company public, cashing in through several iterations. Mineta joined the board in December 2006. Horizon recently signed a deal for Chinese shipping.

Mineta has 30,000 vested stock options, 4,956 unvested options and 8,199 restricted stock units of AECOM. At $24 per share Norman holds $200,000 in shares, options not included.

AECOM gets 71% of its revenue from governments, 48% within the continental U.S. Their work touches the commission via marine transportation, environmental management services and energy/power segments. AECOM's environment services "support global energy infrastructure development for a number of large petroleum companies," as well as "development of protected groundwater resources for companies in the bottled water industry."
Consider this a partial declaration of Mr. Mineta's financial conflicts of interest, just in case he doesn't cite them in Joint Ocean Commission meetings.

Sunday, August 15, 2010

PEU's Follow USAID to Sri Lanka

Uncle Sam is creating 3,000 high tech jobs in Sri Lanka and supporting growth in the following industries.

High tech - Java programming
Business process outsourcing
Dairy (Land O'Lakes)
Horticulture (Hayleys)

I pondered which private equity underwriters (PEU's) would line up for government support? The SundayTimes answered.

Sri Lanka's Board of Investment will host a conference for potential investors:

The Board of Investment (BOI) is holding a mega 3-day investment conference next month for about 15 multinational fund manager and equity firms, in a move to promote Sri Lanka as an investment destination, BOI sources said. “We will be holding this conference from September 20-22 and it will be one of the massive investment promotion drives of the BOI for this year,” a BOI official told the Business Times.

He said that some of the firms slated to come are Actis, Apollo Management LLP, Cordiant Capital, Carlyle Group, General Atlantic, T A Associates, Silverlake, etc.

Will the BOI promote USAID funded opportunities?

Saturday, August 14, 2010

Bob Rubin Goes Full Circle on CDS

An economist commented on Bob Rubin's joining Centerview Partners. He stated:

Saw your post on Rubin/Centerview. I didn't realize that they were advising AIG.

This brings the entire CDS crisis full circle, with Rubin on all ends. Goldman, where Rubin was CEO, buys CDSs through AIG (which Rubin is now advising through CrestView), Goldman buys protection against AIG going under, from Citi (when Rubin was there). Amazing.
Yes, it is.

Bob Rubin would defend himself, citing that he always thought derivatives should be regulated. History shows little evidence of Bob's fighting for supervision. Rubin and Summers resisted Brooksley Born's attempts to regulate derivatives.

President Bill Clinton said he got lousy advice from the pair, but that came with the benefit of hindsight. Ironically, Clinton dissed Goldman Sachs (Rubin's old firm) for selling stuff with "no underlying merit."

Yet, derivatives made Goldman big money.

The nation's five largest banks together earned $23 billion from derivatives trading in 2009.

That's after the financial meltdown. It seems Bob Rubin, Bill Clinton and derivatives have something in common. All are hard to control, adaptable & remarkably profitable.

Friday, August 13, 2010

PEU's Strong Wallet Australia, Middle East & U.S.

Tax uncertainty drives private equity dollars. Carlyle Group's managing director in Australia had this to say about his country's tax environment:

"Our investment committee is facing a global opportunity set and trying to allocate capital on that basis," Simon Moore said. And where there was uncertainty, "you have to take a worst-case scenario as to what the tax outcome will be".

Similar words were offered regarding the Middle East, specifically Arab Gulf states in the Gulf Cooperation Council (GCC):

"We need to see some investments, we need to see the macro environment improving, we need to get the families on board," said Jeremie Le Febvre, partner-in-charge of Middle East and North Africa (MENA) at Triago, a private equity adviser.

"A combination of all these factors will make the Middle East quite attractive because right now the message to investors is quite blurry," he said.

Before the global financial crisis erupted, iconic private equity firms from across the globe such as KKR and Carlyle Group set up shop, attracted by the region's petrodollars and spectacular growth prospects.

The risk now is that without reforms to spur the sector, such firms will go back to viewing the region mainly as a source of capital and not an investment destination.

America rings a similar refrain. Obama's Deficit Commission wants to make the U.S. more competitive in a global economy. That includes tax policy. Erskine Bowles, Commission co-chair, cited his need to make another fortune, having lost his last one. Rest assured that Bowles will do his best to help fellow private equity underwriters (PEU's).

BankUnited Planning IPO

The Carlyle Group, Wilbur Ross, Blackstone Group and Centerbridge Partners selected underwriters for a BankUnited independent public offering (IPO). According to Bloomberg underwriters include Bank of America, Deutsche Bank AG, Goldman Sachs and Morgan Stanley.

The FDIC recapitalized BankUnited via a $4.9 billion subsidy. Carlyle and company have owned BankUnited 15 months. Recall concerns over private equity underwriters holding banks a short period of time before cashing in? Where does 15 months fit?

Once public, will BankUnited acquire other banks? Let the government supported windfalls continue. It's a shame some people are making big money off public assistance.

Update 9-12-10: Bloomberg reported on "plans to raise more than $500 million" via the IPO, said people with knowledge of the matter. The initial public offering would raise capital for acquisitions, while "returning some cash to the owners."  WSJ reported on who got rich from BU's IPO.

Thursday, August 12, 2010

Bob Rubin PEU

Robert Rubin, former Treasury Chief and CitiGroup Chairman, will join Centerview Partners, an advisory and private equity firm based in New York. His role will be part-time counselor.

Centerview was formed in 2006 by three former Wall Street executives. They currently advise the government on AIG and a founder suggested temporary corporate tax relief in an op-ed.

The boutique firm has a private equity division. Bob Rubin joins legions of ex-government officials as a private equity underwriter (PEU). Is cuddling in his job description?