Monday, September 18, 2017

Carlyle Group LPs Treated to Yet Another U.S. President


President Obama continues to follow predecessor Bill Clinton's footsteps.  He spoke at the annual Carlyle Group Investor Meeting, the one reserved for limited partners (not lowly unitholders).  Obama's fee was nearly double Bill Clinton's.  The Carlyle talk was one of three that will make Obama over $1 million.

Obama ran as a populist then served the people he promised to hold accountable. He ran as a peace maker then made war after optional war. He said Hillary would continue his legacy and that's what scared many.

Ex-President Obama’s obscene speaking fees are from Wall Street and private equity underwriter LP events. This is what made the Blue Team like the Reds and turned many voters away from Hillary Clinton, who also spoke at Carlyle Group events.

Obama explained away his absurd payments by saying he will give $2 million to children's charities.  The logic is "it's OK to make the king's riches as long as the king is benevolent."  Carlyle Group co-founder David Rubenstein doles out his billions to historical charitable causes. Is Obama trying to imitate the most visible of his three Carlyle DBD hosts? 

Obama would be wise to consider the perspective of Mrs. Rubenstein, with whom he dined during an Alaska visit as President.  An Alaska insider reported:

Rubenstein is worth an estimated $2.5 billion. He spent $21.3 million to buy the Magna Carta in 2007.   “He told reporters he was just a ‘temporary custodian’ of the historic piece of parchment. 

In 2016, Rubenstein gave the National Park Service $18.5 million to help restore the Lincoln Memorial.  In private, Alice Rogoff Rubenstein has described those acts as publicity grabs and claimed all her financier husband really cares about is making money. 
Crony capitalist birds of a feather flock together, especially at the Carlyle Group Annual Gathering of Limited Partners.  After 9-11 one of the first nonmilitary plane to hit U.S. airspace held attendees from Carlyle's investor meeting.  In 2014 Carlyle found it important to track LPs and their movements.

How might Brand Obama help a cash engorged Carlyle Group profit?  Obama made history, the PEU kind. 

Sunday, September 17, 2017

Pharma Patent Transfer to Native Tribes Latest Legal Scam

 NYT reported:

The drugmaker Allergan announced Friday that it had transferred its patents on a best-selling eye drug to the Saint Regis Mohawk Tribe in upstate New York — an unusual gambit to protect the drug from a patent dispute.

Under the deal, which involves the dry-eye drug Restasis, Allergan will pay the tribe $13.75 million. In exchange, the tribe will claim sovereign immunity as grounds to dismiss a patent challenge through a unit of the United States Patent and Trademark Office. The tribe will lease the patents back to Allergan, and will receive $15 million in annual royalties as long as the patents remain valid.
Allergan announced the deal in a press release.  This hearkens back to a time when corporations worked with Alaskan Natives to avoid taxes.  It became known as the Great Eskimo Tax Scam.

The Great Eskimo Tax Scam grew out of a brief, curious tax loophole that permitted Alaskan companies owned by Eskimos to sell their losses for hard cash to other American corporations. By offsetting the Eskimo losses against their gains, American corporations were able to avoid income taxes. All of a sudden there was a business in matching up profitable American corporations with Eskimos. (Carlyle Group co-founder David) Rubenstein and Norris spotted the window of opportunity and leapt through.
Since no one likes to pay taxes, finding the corporate buyers was easy. The trick was to flush out the loss-making Eskimos. Through a friend in Washington, Rubenstein plugged himself into a group in northern Alaska that had discovered a dubious technique for showing tax losses on idle property. (The Internal Revenue Service now challenges the validity of the Eskimos' accounting.) To persuade the Eskimos to deal with him, Rubenstein flew them to Washington and put them up in a fancy hotel on the condition that they listen to his pitch. In less than a year Rubenstein and Norris shuffled between $1 billion and $2 billion dollars of dubious Eskimo losses into profitable American companies, for which they took a 1 percent fee, or between $10 million and $20 million. "I wouldn't be surprised if they made more on that than they've made on everything else since," says a Carlyle associate. According to Rubenstein, "It gave me and some of the others here the confidence that we could compete in the investment world." Still, he only acknowledges his debt to the business of tax avoidance after the subject has been raised. 
It took Congress several years to close the Eskimo loophole.   How long will it take to close the sovereign immunity loophole for patent protection?  The dodge enables drugs to stay on patent, i.e. remain more expensive and hold off cheaper generic versions. 

It's been ten years since Congress first attempted to eliminate preferred carried interest taxation for private equity underwriters, like Carlyle.  Congress hasn't done it despite overwhelming public support for billionaires to pay the same tax rate as their secretary. 

Congress serves their funders.  Rarely do they serve the people.  I expect the Tribal Patent Protection Scam will live for quite a time.

Saturday, September 16, 2017

Toys "R" Us: A PEU Return?


Bloomberg reported:

Some suppliers to Toys “R” Us Inc. have scaled back shipments to the retailer as it struggles to refinance debt and avoid a potential bankruptcy filing, according to people with knowledge of the matter.

The vendors are balking as Toys “R” Us continues talks with lenders over a new loan that would allow the company to stay open while it works out a recovery plan through bankruptcy proceedings, said the people, who asked not to be identified because discussions are private. The loan is being marketed by Lazard Ltd. to banks and existing creditors, said one of the people. 
Bain Capital owns Toys "R" Us alongside fellow private equity underwriter (PEU) KKR:

Toys “R” Us has vexed private equity owners Bain Capital, KKR & Co. and Vornado Realty Trust, which loaded the retailer with debt in a $7.5 billion buyout more than a decade ago. 

As doubts about the company’s health mounted, the cost for debtholders to insure against a default by Toys “R” Us surged in the past week to levels that imply a more than 60 percent chance it won’t meet its obligations in the next year. Credit-default swaps expiring in June were trading at 36 percentage points upfront, or $3.6 million for every $10 million of debt insured, according to data provider CMA. That’s up from $300,000 per $10 million at the start of the month.
Toys "R" Us bonds fell to 43 cents on the dollar on Friday.  CDS coverage rose to $4.6 million for every $10 million of debt insured.

Bain, KKR and Vornado won't throw good money after bad.  They are shopping for "a DIP loan to fund operations under chapter 11."  Will Toys "R" Us owners have gotten their money's worth from the company before they return it to debtholders?

Update 9-18-17:  Implosion is imminent.  Bloomberg reported "Credit default swaps expiring in December traded at more than 75 points upfront Monday. That means it would cost about $7.5 million to insure $10 million of Toys “R” Us debt.  Its 7.375 percent notes due 2018 traded for as little as 18 cents during Monday’s session."

Update 9-19-17:  Bain, KKR and Vornado returned Toys "R" Us to bondholders with its bankruptcy filing in Richmond, Virginia.  It's the second largest retail bankruptcy filing ever.

Tuesday, September 12, 2017

Vitamin World Files for Bankruptcy Post Carlyle


Former Carlyle affiliate Vitamin World declared bankruptcy according to CTPost

In a filing with the U.S. Bankruptcy Court for the District of Delaware, Holbrook, N.Y.-based Vitamin World blamed underperforming stores, above-market rents and unspecified disruptions in its base of suppliers.
Centre Lane Partner bought Vitamin World in February 2016 from Carlyle Group affiliate NBTY, also known as Nature's Bounty.   At the time of the sale the Carlyle team stated:

"With the shift of NBTY's focus in our US business to investing in and building our core brands, this sale of Vitamin World to Centre Lane Partners will ensure Vitamin World has the right investment and focus on its future as a stand-alone retail business." 
Centre Lane paid $25 million for Vitamin World

Vitamin World lists as its largest unsecured creditor The Nature’s Bounty Co., owed $21.5 million.
It's not clear how much of the amount owed is from the sale or from store inventory.  The bankruptcy filing shows the $21.5 million owed is debt from the sale plus trade.  The current obligation is 86% of the $25 million purchase price.  

In the Petition, Vitamin World reports $50 million to $100 million in assets and $10 million to $50 million in liabilities.  This statement does not fit with the filing document which shows a $125 million unsecured claim by 10th Lane Partners, LLC.  10th Lane is part of Centre Lane Partners.  Quinn Morgan heads both Centre Lane and 10th Lane.

Reuters reported last week the likelihood of a bankruptcy as a way to get out of leases on unprofitable stores.
I'll bet Vitamin World meets its $125 million financial commitment to its owners, Centre Lane and 10th Lane.

Update 9-13-17:  Store closures and renegotiating lower rent is the aim of the filing.

Sunday, September 10, 2017

Petraeus' "Biggest Gig Yet" is Peanuts for PEU Partner


Who knew being a board member of an affiliate beat out being partner of the owning private equity underwriter (PEU)?  That's the line KKR's David Petraeus wants the public to believe.  Reuters reported:

Former United States CIA Director David Petraeus said Thursday he has joined the board of a large cybersecurity company controlled by investment firm Kohlberg Kravis Roberts (KKR & Co. LP), taking his most prominent role in the private sector. 
That statement is blather.  KKR has nearly $150 billion in assets under management.

Petraeus, a KKR partner and head of its global risk assessment, said in an exclusive interview that he was joining Optiv Security because of the increasing importance of hacking threats. 
The private equity group KKR bought a dominant stake in Optiv this February. The company has about $2 billion in annual revenue and more than 1,000 employees.
News reports suggest KKR paid $1.8 to $1.9 billion for Optiv.  They bought the company to grow its government cybersecurity business:

wanting to expand Optiv’s commercial customer base beyond the 67 percent of the Fortune 500 that it currently serves and deeper into the government, where former general Petraeus pledged to help with his understanding of intelligence and military needs.  
KKR isn't the first PEU with such a vision.  The Carlyle Group invested in Coalfire in September 2016, doing so alongside The Chertoff Group.  Months later Coalfire acquired The Veris Group to:

become a major cybersecurity and threat assessment consultancy to federal agencies, businesses and cloud-computing service providers looking to do business with the federal government.
I find it interest private equity underwriters are happy to take government money but they become very concerned when their patriotic duty of paying taxes is raised.  Uncle Sam is to provide incremental revenue so PEUs can profit but that's all.  Billionaire PEUs retained preferred carried interest taxation for the last decade.  

Optiv's press release stated:

Now, with Gen. Petraeus as an advisor, we can step up our efforts and do even more for our country.
More for our country?  KKR could do more for our country by having founders Henry Kravis and George Roberts forego their preferred carried interest taxation.    That's not likely to happen.

Trump has hosted a steady stream of private equity executives since the election. Carlyle Group LP co-CEO David Rubenstein, Blackstone’s real estate head Jon Gray, KKR’s Henry Kravis and Cerberus Capital Management’s Steve Feinberg have been among his visitors.
Politicians Red and Blue love PEU, which is why carried interest lives on.

Saturday, September 9, 2017

Decade Long Canard: Taxing PEU Carried Interest as Income


Republicans and Democrats threatened for the last decade to tax private equity billionaires at the same rate as their secretaries.  The American public, long finding this practice abhorrent, stood ready for elected officials to eliminate this enrichment loophole.  Serious debate occurred in 2007 and 2010.  Candidates Barack Obama and Donald Trump promised they would address this inequity.  Obama didn't and the Trump administration is walking back its commitment.

There's something odd in this debate.  Private equity underwriters (PEU) more than doubled assets under management (AUM) over the last decade from just over $1 trillion in 2006 to nearly $2.5 trillion in mid 2016.  Despite an 115% growth in PEU AUM projected proceeds from changing the law fell 42%.  It dropped from $26 billion in 2006 to a current projection of $15 billion.  What?

This faulty math fits with Carlyle co-founder David Rubenstein's longstanding discount of changing tax law.   Flashback to Congress' last serious attempt in this arena when Rubenstein lobbied hard to retain private equity's preferred taxation.  The NewYorker reported:

On June 8th, (2010) Rubenstein’s cell phone rang as he was speaking to supporters of the Economic Club, at the Phillips Collection. He left the stage to take the call. Among those in the audience was Gary Shapiro, the consumer-electronics lobbyist who was Rubenstein’s travel companion to Japan in the eighties. After a few minutes, Shapiro recalls, Rubenstein returned and said, “That was a senator. That one call just saved us on carried interest.
And it was a bipartisan save.  A major financial reporter wrote:

I watched a video interview of Rubenstein and his arrogance is really beyond tolerance. He was going on about the debt ceiling problem and how there would need to be cuts in services and higher taxes. When the reporter asked him about tax on carried interest he turned really disdainful and said that this "only" amounted to $22 billion over some number of years and this was not serious money. Boy, nothing like everybody doing their small part to save the country from oblivion!
Fifteen billion, that sounds like serious money even for Carlyle.  Washington Business Journal reported:

Private equity juggernaut The Carlyle Group (NASDAQ: CG) is looking to bust through the record for the biggest domestic buyout fund ever — and it's aiming for $15 billion, according to Bloomberg News.

If the D.C.-based firm is successful, it would be the biggest domestic buyout fund — larger funds have been raised for overseas buyouts — topping the $13.9 billion KKK & Co. fund raised in March.
Obviously, Mr. Rubenstein has different definitions for serious money.  His record on not wanting to pay taxes is long and clear.  He has spoken them to many politicians, most of whom call back.  In Washington D.C. money talks louder than the will of the people.

Wednesday, September 6, 2017

Carlyle Wins CCC Lawsuit Brought by Liquidators


Bloomberg reported a Guernsey Court ruled in favor of The Carlyle Group in a $1 billion lawsuit seeking damages for the Washington, D.C. based private equity underwriter (PEU).  The suit "alleged that the partnership and fund’s board of directors were negligent, grossly negligent or had willfully mismanaged the pool and breached certain fiduciary duties." The court did not buy that argument for Carlyle's operation of Carlyle Capital Corporation:

Carlyle Capital was a leveraged mortgage-bond fund formed in 2006 at the height of the real estate bubble. The pool met its demise in March 2008 when its mortgage-backed collateral plummeted and the fund defaulted on $16.6 billion in debt
Bloomberg did not state how highly Carlyle leveraged the fund (32x) or that the fund went public on Euronext in July 2007.    It also failed to note Guernsey's status as a tax haven.  Having a court side with losing investors or bankruptcy liquidators against a global tax dodger could harm new incorporations.  That would not do.

So the next time Carlyle comes calling with a highly leveraged fund based on bubble inflated assets know you don't stand a chance of getting your money back should it implode and Carlyle management will be held to no standard.

If you hear a sales pitch like this:

superior risk- adjusted returns from investments in a diversified portfolio of fixed income investments” that “expects to pay investors 90 per cent of its net income, have net returns of 14.1 per cent and a projected net dividend yield of 12.5 per cent
Beware.   The last group of suckers lost it all.

Saturday, September 2, 2017

PEU Carried Interest Thank You Letter


Dear Congress,

This Labor Day weekend we would like to thank you for not eliminating the "billionaire tax break" for the last ten years.  The public dislikes our paying taxes at a far cheaper rate than many citizens.  Sensational news reports have used secretaries and gardeners in their examples.

The first run at eliminating our preferred carried interest taxation came in 2007.  You kindly entertained Carlyle Group co-founder David Rubenstein, Blackstone's Stephen Schwarzman, KKR's Henry Kravis and  David Bonderman of TPG.  You received the message sent by twenty lobbying firms for which we spent $4.9 million.  Our case was and is:

Private 
Equity
Capital 
Knowldege is
Executed 
Responsibly
The next serious run at eliminating the loophole came in 2010.  Indiana Senator Evan Bayh went from protecting the billionaire tax to working for Leon Black's Apollo Global.  The public didn't know that many of you would retire from public service only to work for us.

Estimates for eliminating private equity's preferred taxation ranged from $25 to $27 billion over ten years.  Thanks to your inaction that money stayed in our pockets.  We put it to good use by giving our secretaries and gardeners an average wage increase of 1-2% per year over the period, raises that failed to keep up with inflation..

We appreciate your letting us buy a reprieve in 2007 that continues today.  Given the number of private equity underwriters (PEU) in President Trump's cabinet we trust you and the White House still have our backs.  In gratitude,

The PEU Boys (Summer 2017)

Sunday, August 20, 2017

KKR to Cash in on Arbor Pharmaceuticals


Reuters reported several Chines suitors are pursuing Arbor Pharmaceuticals. 

A potential deal could value Arbor at around $3 billion. New York-based KKR agreed to buy more than a quarter of shares in the company in December 2014, in a deal that valued privately held Arbor at over $1 billion, Reuters reported at the time. 
KKR did add Xenoport in 2016 for $467 million.

Buyout appetite from large pharmaceutical companies and private equity firms has pushed dealmaking in the healthcare sector to record levels this year.
For holding Arbor Pharmaceuticals less than three years KKR could make 200% gross profit.  That does not include any PEU management fees, dividend bleeding or deal fees.   I'm not sure my health care coverage is 200% worse than 2014 but it's darned close. 

A Chinese purchase should make U.S. consumers nervous, especially those who recall the deadly heparin outbreak in late 2007 and early 2008.  It came from toxic Chinese drug ingredients.

One Arbor employee advised management in June on Glassdoor:

The products ARE NOT GOOD. The supply chain is WORSE. The amount customers pay out of pocket IS HORRIFIC.
KKR will sell Arbor Pharmaceuticals but is buying WebMD for $2.8 billion.  As people can longer afford health they search the internet for information.  I'm not sure how PEU owned WebMD will change, but it won't be for the better. 

Friday, August 18, 2017

Jindal Latest Private Equity Underwriter

-

The Advocate reported:

“The firm is large enough to make an impact, and the people are high quality,” Jindal writes, per the Business Report. “I have enjoyed the private equity work I have done over the last several months, and am confident this platform will allow me to help portfolio companies accelerate their growth while also making a real impact in the changing health care environment.”

According to the report, Jindal expects to primarily work with the Ares Private Equity Group.

“Given my policy background at the federal and state levels, and private sector experience, I will naturally start with a strong focus in health care investments, but will also diversify over time to other areas where I can add value,” he writes.
My health insurance turned to junk the last decade as my plan shed benefit after benefit.  A pox on politicians getting big paydays from private equity underwriters (PEU), especially those making big money flipping for-profit healthcare companies.

Bobby Jindal is but the latest in a long line of profiting politicians, both Red and Blue.  America's uni-party loves PEU.

Reader Reaction 8-19-17:  "There are so many carcasses from all the pilfering that the only game is to join the vultures. Infrastructure will be the next carve up before the space cowboys seek subsidies to infinity. Thanks. The country has gone numb and dumb."  


Sunday, August 13, 2017

Carlyle Cites PEU Paradox


Carlyle Group co-founder David Rubenstein shared in a recent earnings call:

"I think, final comment, what I’d call the paradox of private equity is that returns are coming down, prices are high. There’s a lot of dry powder by normal standards. So why are so many people giving so much money to people like us? Because they see everything else being less attractive
What has Carlyle done in the past to earn returns for investors?  It launched Carlyle Capital Corporation during an era of high prices and lots of dry powder.  Carlyle's website states:

When The Carlyle Group created Carlyle Capital Corporation in 2006, it was designed to provide attractive risk-adjusted returns for shareholders by investing in a diversified portfolio of fixed income assets consisting of U.S. government agency AAA-rated RMBS securities and leveraged finance assets. Due to the low-risk, low-return nature of the U.S. government agency-backed securities, a large position (and thus a correspondingly large amount of leverage) was required to realize gains substantial enough to warrant the investment. At the time, this approach was time tested in the market for these types of assets.  Unfortunately, extreme volatility and market movement during this liquidity crisis created a hostile environment for CCC and similar types of vehicles.
Carlyle promised to make back investor losses:

David Rubenstein, co-founder of the Carlyle Group, on Thursday pledged to compensate investors hit by the collapse of a $22bn mortgage-backed securities fund his private equity group floated seven months ago. “We have stood behind our products in the past and we are working on ways to address the losses that are being suffered by investors,” Mr Rubenstein told the Financial Times
One investor did not fill compensated for his CCC losses and chose another route for payback, bankrolling a lawsuit against Carlyle for its representations and actions regarding Carlyle Capital Corporation.

There are other paradoxes of private equity, some identified by the business media.  I'll offer:

1.  Pension funds invest in Carlyle, which has been known to dump employee pensions as part of its takeover strategy.
2.  Family offices invest in Carlyle, whose co-founder David Rubenstein refuses to leave an inheritance to his children to establish a family office.
3.  Preferred carried interest taxation continues despite ten years of overwhelming popular support for billionaires to pay a higher tax rate than their gardener or secretary. 
The PEU industry grew mightily from the last paradox.

At a Credit Suisse forum in Miami, in 2013, Rubenstein said of private equity, “Carried interest is really what the business has historically been about—producing distributions for your investors from good sales and I.P.O.s . . . and getting twenty per cent of the profits for yourself.” He went on, “That’s how we’ve really grown our business.” 
That's how Mr. Rubenstein likes it.  America's PEU sponsored politicians kept his wish to continue carried interest despite little to no public support.  That's my PEU paradox for the week.

Rogoff-Rubenstein's Alaska Dispatch News Files Bankruptcy


Alaska Dispatch News reported on its bankruptcy declaration:

Alaska's largest newspaper filed for Chapter 11 bankruptcy protection Saturday evening.

In a prepared statement Saturday, Alaska Dispatch News LLC owner Alice Rogoff, who also has served as publisher, said it was a "truly bittersweet" moment for her.
The filing is a Chapter 11 bankruptcy.  Bankruptcy filings are legal proceedings.  I was not aware Alaska courts are open on Saturday evenings.

It's not Alice Rogoff's first Alaska implosion.  Rogoff, wife of billionaire Carlyle Group co-founder David Rubenstein, couldn't save her Alaska House in New York City.  It closed in 2010.

A local buyer group has been identified and committed $1 million for ADN to pay its bills, many of them in arrears.  Buyers will operate the newspaper starting Monday morning.

Rogoff paid $34 million for the former Anchorage Daily News in 2014.  The reported purchase price is "up to $1 million."

The Rubenstein's have strong Alaska connections.  Rogoff hosted President Barack Obama for dinner in her Alaska home.  Two private equity underwriters attended the dinner, one from Guggenheim Partners and the other from Pt Capital.  The Carlyle Group manages Alaska Permanent Fund money and has an interest in Hilcorp Energy, which has a significant Alaska presence.

Two of Alice Rogoff-Rubenstein's Alaska pet projects sank for financial reasons.  Her husband knows when to stop throwing good money into a sinkhole.  Carlyle did that recently with nursing home giant ManorCare and refiner Philadelphia Energy Solutions. Carlyle has $50 billion in dry powder but won't put a penny more in PES.

Lenders clearly want to tie Mr. Rubenstein and his billions to ADN debts.  When the big money boys no longer trust one another to make good on their debts it's financial crisis time.  Will ADN's failure take us one step closer to that reality?

Update 9-13-17:  Mrs. Rubenstein described her husband's patriotic philanthropy as "publicity grabs and claimed all her financier husband really cares about is making money."

Friday, August 4, 2017

IPOs Opportunity for PEUnicorn Founders to Cash In?


Blue Apron expected to go public between $15 and $17 per share.  It went public at $10 and closed today at $5.83.  Bloomberg and other financial media ran reports of a 24% layoff but the job reductions are but part of the picture.  Blue Apron plans to open new fulfillment centers with more jobs than those lost.

The initial S-1 revealed Blue Apron's President has private equity underwriter PEU roots:

Matthew B. Salzberg, one of our founders, has served as our president, chief executive officer, and a director of Blue Apron since inception, and previously served as our treasurer until January 2017. Before co-founding Blue Apron, Mr. Salzberg was employed as a senior associate by Bessemer Venture Partners, a venture capital firm, from June 2010 to January 2012, and as an analyst by The Blackstone Group, a private equity firm, from June 2005 to June 2008.

In June 2014, we used a portion of the proceeds from the April 2014 Series C preferred stock financing to provide liquidity to Matthew B. Salzberg, Ilia M. Papas, and Matthew J. Wadiak, executive officers of our company, by repurchasing shares of common stock from them at a purchase price of $16.6586 per share.  Salzberg sold 150,073 share for proceeds of $2,500,006.

In October 2015, Matthew B. Salzberg, Ilia M. Papas, and Matthew J. Wadiak sold shares of common stock to unrelated investors at a purchase price of $13.3269 per share, which was equal to the common stock-equivalent price at which we issued and sold Series D preferred stock in May and July 2015.  Salzberg received $22,001,899 for his 1,650,939 shares.
Currently Mr. Salzberg owns over 47 million shares of Blue Apron.  Here's the breakdown:

Consists of (i) 25,154,605 shares of Class B common stock held of record by Mr. Salzberg, (ii) 19,744,091 shares of Class B common stock held of record by Family Trust Created Under Article V of the Matthew Salzberg 2014 Annuity Trust Agreement, for which Mr. Salzberg and his father serve as co-trustees, (iii) 2,500,000 shares of Class B common stock held of record by The Matthew Salzberg Family 2014 Trust, for which Mr. Salzberg serves as a trustee, (iv) 18,759 shares of Class B common stock held of record by Aspiration Growth Opportunities II GP, LLC, with respect to which Mr. Salzberg has shared investment and voting power and (v) 3,888 shares of Class B common stock subject to options exercisable within 60 days of April 30, 2017 of which 1,944 are vested as of such date. 
Salzberg got nearly $25 million for a small portion of his stock holdings prior to Blue Apron's going public.  His $25 million came from stock sales at prices well above today's close. It's a nice gig when an executive can sell his stock on the inside at a multiple of its current share value.

It's also cool when you can hire your brother:
Shaun Salzberg Design, LLC, which is owned by Shaun Salzberg, the brother of Matthew B. Salzberg, provides software design, implementation, and related services to us as an independent contractor. For these services, we pay hourly fees and reimburse specified expenses. These services were initially provided under a consulting agreement dated October 28, 2015 and, following expiration of the agreement on October 28, 2016, have continued to be provided on substantially the same terms. To date, we have paid Shaun Salzberg Design, LLC an aggregate of $149,550 pursuant to these arrangements. 
While Bloomberg got the employment story wrong this tidbit is enlighteing:

Our tri-class capital structure has the effect of concentrating voting control with our president and chief executive officer, Matthew B. Salzberg, and the other holders of Class B common stock. This structure will limit or preclude your ability to influence corporate matters, including a change of control, and might affect the market price of our Class A common stock. 
I bet Salzberg learned it from Blackstone.  It's a PEU world. 

Tuesday, August 1, 2017

Carlyle Won't Use Dry Powder for PES


The Carlyle Group invested $175 million in 2012 for for two-thirds of Philadelphia Energy Solutions (PES).  The deal received public subsidies and Carlyle did a liquidity recap, loaded PES with debt to siphon off dividends.  Reuters reported:

The refinery owners enjoyed a taxpayer-funded rescue package, which included the creation of a tax-friendly zone, $25 million in grants and environmental liability waivers. 

The company took on the $550 million loan that comes due early next year in 2013 to finish capital projects and pay out dividends to Carlyle and Sunoco. 

The payouts and tax advances reached $480.9 million between 2013 and 2015, according to filings.
Now Carlyle wants to restructure the company with someone else's money.  Insiders say Carlyle hired an investment bank to help tackle PES' debt burden.  

Carlyle has been a big investor in energy and has loads of dry powder but it will not throw good money after bad, especially for an investment that has already returned a multiple of its initial equity position.  

Public subsidy, debt for dividend, and preferred taxation are all common private equity underwriter (PEU)strategies.  Carlyle is skilled at executing the first two and keeping the latter.  Carried interest taxation remains soundly in place a decade after our PEU sponsored Congress first considered removing the billionaire tax break.  Mr. Rubenstein went to Capital Hill many times to keep his preferred taxation.  He got his way as politicians Red and Blue love PEU.

Saturday, July 29, 2017

Anthony Scaramucci's Skybridge: Fees in the Clouds


Brash Wall Street financier Anthony Scaramucci successfully translated Trumpish at the 2017 billionaire bash in Davos, Switzerland.  Scaramucci announced the sale of Skybridge Capital, his hedge fund of funds, while at the World Economic Forum meeting.  The price tag for China conglomerate HNA Group and RON Transatlantic EG dropped from a rumored $250 million to $180 million over the last six months as hedge fund withdrawals grew.  Bloomberg valued the deal at $200 to $230 million.

Scaramucci  received two appointments by President Donald Trump this summer.  His first was to the Export-Import Bank.

Financier Anthony Scaramucci, a prominent surrogate and fundraiser during President Donald Trump's campaign for the White House, has joined the embattled Export-Import Bank in a top position.

Scaramucci became a senior vice president and chief strategy officer at the agency on June 19.
His second appointment elevated Scaramucci to White House Communications Director.  Oddly he never occupied the Ex-Im Bank slot:

Scaramucci has been on unpaid leave from Ex-Im since the day he started there, June 19, a bank spokeswoman said, forgoing his $172,100 salary as chief strategy officer.
The Ex-Im job was essentially a special purpose vehicle (SPV) for Scaramucci to get to Washington.  Once installed in the White House Scarmucci went to work, employing his sales skills.  It turned out Scaramucci speaks Trumpish directly, as he did to the The New Yorker's Ryan Lizza.

Skybridge G II Fund's prospectus dated 1-30-2013 listed fees and expenses of over 10% per year, according to a SEC filing
The purpose of the table above is to assist prospective investors in understanding the various fees and expenses Shareholders are expected to bear directly or indirectly.
That's quite the prospectus showing fees at twice the rate of projected returns.  One's investment could be sucked away over time to pay Anthony Scaramucci and his staff.

In addition Scaramucci earned $200,000 in income from a majority stake in Hastings Capital Group, the principal underwriter for Skybridge's various investment vehicles. It's a form of double dipping, making multiple fees on a transaction.

Hastings Capital Group, LLC, an affiliate of the Adviser, serves as the Company’s Principal Underwriter with authority to sell Shares directly and to appoint Placement Agents to assist the Principal Underwriter in selling Shares.

The Adviser or its affiliates, including the Principal Underwriter, may pay from their own resources compensation to the Placement Agents in connection with placement of Shares or servicing of investors. Prospective investors also should be aware that these payments could create incentives on the part of the Placement Agents to more positively consider the Company relative to investment funds not making payments of this nature or making smaller such payments. 
It's difficult to tell how much Scaramucci will make from the delayed sale of Skybridge Capital as a "principal of the investment advisor."  It will be enough for him to dive into politics without financial worry.  The Blue team's Rahm Emanuel made big money between public service stints.

Chicago is the place where Rahm's personal financial house expanded greatly in terms of resources.  As an investment banker Emanuel made $18.5 million in two and a half years.  His political influence grew as a member of Congress and President Obama's Chief of Staff.   
How far might Anthony Scaramucci go in the Trump White House?  Will he make it to Trump's  #1 advisor once he has his core wealth locked up?  Scaramucci curses like Rahm and is also hyper-competitive.  Both share a potty mouth.  They are but two sides of the same coin, greed and power.  Politicians Red and Blue love PEU.  Scaramucci is the latest appointment in Trump's D.C. swamp. 

Update 7-31-17:  After 10 days on the job the Trump White House dismissed Scaramucci as Communications Director.  

Wednesday, July 19, 2017

Alaska News Boiling Under the PEU Surface?

Disruption made big profits for The Carlyle Group when it correctly read market geography.  It cost Carlyle big when affiliates experienced unanticipated adverse conditions.  Lately Carlyle bet big on energy, trying to get access to undervalued energy assets.  Less than two years ago it struck a deal with Hilcorp Energy to invest in North America energy.  Carlyle's press release stated:

Hilcorp Energy Company ("Hilcorp"), a privately owned oil and gas exploration and development company based in Houston, Texas, today announced the establishment of a newly formed partnership, Hilcorp Energy Development, L.P. (the "Company"), which seeks to acquire, operate and develop onshore oil and natural gas properties and related assets in North America.  In conjunction with the establishment of the Company, the Carlyle Energy Mezzanine Opportunities Fund, L.P. and Carlyle Energy Mezzanine Opportunities Fund II, L.P. ("Carlyle"), funds controlled by The Carlyle Group, have entered into a definitive agreement to invest up to $1.24 billion in the newly formed partnership.
Fast forward to summer 2017 and Hilcorp Alaska is the only bidder for 14 tracts of potential energy assets under Alaska's Cook Inlet.

Hilcorp Alaska LLC, a unit of privately held Hilcorp Energy Co. and an emerging force in the Alaska oil and gas industry, spent over $3 million for exploration rights to 14 federal offshore leases covering about 76,615 acres in Cook Inlet.



It's also the developer of a pipeline that would run across Cook Inlet.

Hilcorp Alaska is moving ahead with its $75 million plan to transport oil across Cook Inlet by subsea pipeline and close a tank farm that is dangerously close to Redoubt Volcano, according to a permit application filed with the U.S. Army Corps of Engineers.
The company's Alaska operation has the following characteristics:

Hilcorp Alaska has over 500 employees, 90 percent of whom are Alaska residents. Alaska is our home. 
Hilcorp acquired its first Cook Inlet assets in 2011.
Earlier this year Hilcorp had a leaking gas line under Cook Inlet:
This line was previously used to transport oil and was converted to natural gas use a decade before Hilcorp acquired it in 2015.
Carlyle's joint venture with Hilcorp was incorporated on 10-16-2015.  It's not clear how Hilcorp Energy Development, L.P. has invested Carlyle's up to $1.24 billion and whether the partnership put any of that money to work in Alaska.

Carlyle co-founder David Rubenstein's wife Alice Rogoff Rubenstein owns Alaska Dispatch News, which reported a number of stories on Hilcorp.  None of them mentioned any potential conflicts of interest due to Rubenstein family investments..

Rogoff bought into Alaska news in 2014 and 2016 saw her commit to publishing a physical newspaper for fifteen years

The story deepens with reports from Alaskan blogger Craig Medred.  His report from July 3rd:

In Alaska, the state’s largest newspaper and by far largest news organization is teetering on the edge of financial disaster with losses reportedly running to several million dollars per year and owner Alice Rogoff now reported to have tried to shop the publication to at least four different corporations. As of yet, there have been no takers.
His June 26th piece offered details about ADN's financial distress:
Rumors circulating around Anchorage that the Alaska Dispatch News was no longer paying its bill have been given credence by a lawsuit filed by the newspaper’s newsprint provider.
Catalyst Paper went into an Anchorage court on June 22 asking for an order forcing Dispatch, which also does business as ADN.com, to pay its March and April paper bills.

Based in Richmond, British Columbia, Canada, Catalyst is the largest producer of newsprint on the West Coast. 

Its suit against the ADN follows another filed against Arctic Partners, Inc., the Tacoma, Wash., company which owns a building on Arctic Boulevard that Dispatch was renovating  as its new print plant and Alaska news headquarters.

Only last fall, the building was emblazoned with a banner proclaiming “Alaska Dispatch News – COMING SOON.” The banner is gone now, and Dispatch appears to have been locked out of the building housing its new press after running up a bill of approximately $1 million with M&M Wiring, an Anchorage electric contractor.
Should Alaska Dispatch News implode it would follow Rogoff's Alaska House in New York City.  It closed in the summer 2010 despite efforts to obtain private and public funding.

Rogoff-Rubenstein's plan to raise $1 million per year from Alaska Permanent Fund money managers mired in Wall Street's meltdown. Oddly, while her husband's personal finances recovered in 2009 and Carlyle monetized affiliates, donors remained hard to find.

Alice Rogoff-Rubenstein turned to the government, which did not deliver. Senator Murkowski failed to submit a $1.5 million federal earmark to fund operations. The Alaska State Legislature passed on a requested $600,000 appropriation.
Will Rogoff-Rubenstein once again seek public support from the state or feds for her pet project?  Her husband hates throwing good money after bad.  He cut off Alaska House.  Is Alaska Dispatch News next?

Update 8-1-17:  Must Read Alaska ran a story on the missing Mr. Rubenstein. 

Wednesday, July 12, 2017

Fed Nominee Quarles Profiting from Public Bank Subsidies a "Nothingburger"


Reuters reported how Fed Nominee Randall Quarles personally profited from public subsidies while working at The Carlyle Group, a politically connected private equity underwriter.  Carlyle's Boston Private received $150 million in TARP funding while the FDIC recapitalized BankUnited so four PEUs could make huge profits.

Those investments earned hundreds of millions of dollars for Carlyle, profits that would not have been possible without government support
Carlyle completed its highly profitable exit of BankUnited in March 2014.   Three months later Quarles left Carlyle to start The Cynosure Group.

"Profiting in the markets isn't a scarlet letter in this Congress."
Carlyle's profits came not from trading in public markets.   They came courtesy of public subsidies.  Quarles oversaw both investments while at Carlyle.  Carlyle exited Boston Private in July 2013.

Quarles will be President Trump's latest PEU appointment, capable of steering the Fed ship in a way that profits his former peers.  Once upon a time that might have been a concern.  Today it's a badge of honor for both the Red and Blue political teams (who jointly love PEU).

Update 7-16-17:  Denver Post raised concerns about Quarles appointment.

Monday, July 10, 2017

PEUs Behind Hamilton Hustle


The Hamilton Project's Advisory Board has benefited greatly from income inequality, something the group purports to reduce.

Launched in 2006 as an economic policy initiative at the Brookings Institution, The Hamilton Project is guided by an Advisory Council of academics, business leaders, and former public policy makers. The Project provides a platform for a broad range of leading economic thinkers to inject innovative and pragmatic policy options into the national debate.
The Hamilton Project "offer(s) a strikingly different vision from the economic policies that contributed to the alarming trends in rising income inequality and a mounting federal deficit."


Private equity underwriters (PEU) are in the top 0.1% and their wealth continues to rise dramatically.  PEU assets under management more than doubled since Bob Rubin founded The Hamilton Project at Brookings.


It's sad that all those pragmatic solutions rooted in evidence and experience failed to improve income inequality since the Hamilton Project's founding.

The Blue team's alignment with wealth and power ended up serving those already with wealth and power.  The greed/leverage boys on the Board of the Hamilton Project have to be grateful.

Saturday, July 8, 2017

Carlyle Weaves Profits from Brintons


The Carlyle Group sold British carpet maker Brintons to Argand Partners, another private equity underwriter (PEU).

"Brintons has been a solid investment for us (Carlyle), performing strongly over the last five years in a competitive global market."
"Solid investment" means a multiple on Carlyle's original equity investment, which oddly arose through buying discounted debt and forcing a bankruptcy. Carlyle shed Brintons pension onto the British public.

Carlyle Group took control of Brintons in 2011 by buying an £18m debt it owed to Lloyds Bank and putting it through an insolvency known as a pre-pack administration. The process sent Brintons’ pension scheme, which had 1,600 members, into the Pension Protection Fund (PPF).

The rescue cost the PPF, a lifeboat for troubled schemes, about £21.5m and resulted in benefits cuts of more than 10% for 700 members who were below retirement age.  
Carlyle's profits came on the back of workers, some of who will no longer have jobs.

Historic carpet company Brintons is aiming to axe around 60 jobs at its factory in Kidderminster as it shuts down weaving of Axminster carpets after more than a century.

The latest move comes just 18 months after Brintons cut another 65 jobs from the Kidderminster workforce.
While the sale price is undisclosed some financial information is available:

Its last accounts show earnings after tax had soared 81 per cent to £14.5 million in the 12 months to October 1, 2016.
Often the sale price is a multiple of earnings.  What multiple did Carlyle achieve in its "lucrative sale of a carpet manufacturer that dumped its pension fund?"

Update 7-9-17:  Brintons is "renowned globally for carpeting the White House, the Kremlin and Buckingham Palace."

Sunday, July 2, 2017

Temptation Returns: Record $23.5 Billion Apollo Buyout Fund


WSJ reported:

Apollo Global Management LLC, the private-equity firm co-founded by billionaire investor Leon Black, has raised $23.5 billion for the world’s largest-ever buyout fund

The record-breaking fundraising is the latest demonstration of a surge in investor appetite for leveraged buyout funds, extending a run of records in recent months. 
NYT reported:

Cash is being raised at a rate not seen since 2008. CVC Capital, based in London, raised more than $18 billion for Europe’s largest buyout vehicle earlier this year, Silver Lake pulled together $15 billion for tech deals, and Kohlberg Kravis Roberts set a record in Asia with a $9.3 billion fund while also putting the finishing touches on a $13.9 billion United States fund.

With so much money sloshing around, it is getting harder to imagine how it all will be invested profitably. The research outfit Preqin estimates there is some $920 billion available in private equity. With leverage, that is more than $3 trillion to deploy.
Private equity underwriters (PEU) count on cheap debt, preferred taxation and rising asset prices.  Take away these advantages and the greed/leverage boys have to scramble to hold things together.  Ironically, Senator Evan Bayh helped Apollo keep its preferred taxation, even as Bayh was interviewing to join the Apollo PEU team.  

Cash being raised at a rate not seen since 2008 brings back memories of the go-go PEU years.  Here's Carlyle Group co-founder David Rubenstein in 2010.  Looking back at the financial crisis he said:

“Debt was offered to you no matter whatVery few of us were able to resist the temptation”--Carlyle chief David Rubenstein 
So what did Mr. Rubenstein do as that cheap debt imploded?

"The flavor of the day is buying your own debt at below face value. I'm buying bank debt in my deal with leverage from the bank that made me that deal"--David Rubenstein in Forbes, May 2008.
There's plenty of PEU cash to make levered deals and buy back affiliate debt on the cheap should the face value of that debt fall.   Apollo Global has $23.5 billion to do just that.

New Carlyle Idea Exchange Planned for U. of Chicago


Carlyle Group co-founder David Rubernstein sits on the board of the University of Chicago, which plans to name a new building after him.  The Rubenstein Forum will be "a place of intellectual, institutional and educational exchange."

The programs for the building will be designed by several focus groups and consultants along with more than 100 plus faculty and staff from the University of Chicago.
I imagine there will be some parameters for planned programs in the Rubenstein Center.  I'll be shocked if this former financial reporter is invited to speak, given what they had to say about private equity underwriters (PEU) in 2011:

I know from personal experience that the financial press is so eager to break news on "deals" that reporters (who are increasingly compensated on the number of "market moving stories" they write) can't afford to be critical of Carlyle, KKR and Blackstone, and risk losing access to people at those firms.

I have seen so many people -- particularly those in their 50s - 70s -- taken apart by what has happened in their industry as greed has hollowed out the economy. These are people took pride in their jobs and held themselves to this invisible standard that we all just took for granted, but is being wiped out. 
The Carlyle Group scares me more than anything I've ever seen on Wall Street. It seems to exist to corrupt politicians and it's hard to know who they even represent.
I watched a video interview of (David) Rubenstein and his arrogance is really beyond tolerance. He was going on about the debt ceiling problem and how there would need to be cuts in services and higher taxes. When the reporter asked him about tax on carried interest he turned really disdainful and said that this "only" amounted to $22 billion over some number of years and this was not serious money. Boy, nothing like everybody doing their small part to save the country from oblivion!
I expect the Rubenstein Center to be a PEU safe space.

Saturday, July 1, 2017

Health Exchange Sale Bagged Gephardt $1.2 Million


The Intercept reported:

The mere prospect of single payer, however, has elicited swift derision from some corners of the party, with Dick Gephardt, the former Democratic House minority leader, laughing off the idea at a health insurance conference earlier this month.

Not in my lifetime,” scoffed Gephardt, when asked if the United States will ever adopt such a system.

Gephardt, who serves as a Democratic “superdelegate” responsible for choosing the party’s presidential nominee, was asked about the possibility of single payer at the Centene Corporation annual investor day conference at The Pierre, a ritzy five-star hotel in New York City.
Prior to serving on the board of health insurer Centene Dick Gephardt was on the board of Extend Health.  Gephardt grossed $1.2 million from his Extend Health stock holdings when Towers Watson purchased the company in 2012. Targeted markets for Extend Health's exchanges included:


  • Retirees with Employer-Sponsored Healthcare Coverage
  • Retirees without Employer-Sponsored Healthcare Coverage
  • Employees with Employer-Sponsored Healthcare Coverage
  • Employees without Employer-Sponsored Healthcare Coverage
(Source Extend Health S-1/A) 
Gephardt may well be expressing his gratitude for being personally enriched by the byzantine health insurance system Democrats foisted on the public, one that eats up more disposable income each year.  Both Extend Health and Centene put millions into Gephardt's pocketbook.  He has blatant conflicts of interest on this issue.

Thursday, June 29, 2017

PEU Deals Back On



Nearly one out of ten corporate buyout in 2017 involved private equity underwriters (PEU).  These are the people who flip whole companies in search of gigantic returns for a handful of executives and their PEU sponsor.    The greed and leverage boys enjoy close relations with leaders of both the Red and Blue political parties.  Red team's Jason Chaffetz is leaving Congress, hoping to land positions on corporate boards.  How many might be PEU owned?  I see Chaffetz getting a PEU appointment straight up.  He just might not do it right away, a strategy employed by Blue Team's Evan Bayh.

Chaffetz could be replaced by Tanner Ainge, co-founder of PEU Prelude Partners and formerly with Jon Huntsman's HGGC.  

There are companies to buy and influence to arrange.  There are Congressional seats to buy, directly or indirectly.  It's the PEU way!

Sunday, June 25, 2017

Ackman Salts Biden's Wound in Vegas


NYPO has an odd story about a dust up between Vice President Joe Biden and hedge fund manager Bill Ackman at the SALT Conference in Las Vegas last month.  The story refers to "wise ass" Bill Ackman, who'd given a half hour talk at the conference that afternoon,  Biden closed the day with his interview.

Conference Chair Anthony Scaramucci, founder of SkyBridge Capital, hosted the dinner for the day's A list speakers.  The media focus on Biden-Ackman interpersonal scuffle could simply highlight a sincere reaction by a grieving father to an insensitive lout.

The title of Biden's talk seems odd,  "Keeping the Momentum: A Conversation on Politics, Prosperity + the American Dream."  Both political parties sold their souls to big donors, who've done remarkably well as the common person lost ground the last two decades.

Biden sat in a position of power for the last eight years, a time when prosperity went to those who already had it.  It's hard to see where Joe Biden's Blue political team has any momentum at all.

Politics now involves a series of campaign positions intended to get voters to press a candidate's button.  Once votes are counted the winner is free to jettison their promises and turn the federal budget toward their political friends and supporters.

Valerie Jarrett spoke on "Democratic Divergence" and Jeb Bush on "Republican Reformation" in a discussion for the future of American politics.  Jarrett's SALT bio omitted her recent position asmember for Ariel Investments' board.

The greed and leverage boys turn out for the SALT Conference:, which fosters one-on-one meeting throughout the event.  It's a place deals can get done.  Founder Scarmucci has his deal in hand, courtesy of China's HNA Group..

SkyBridge Capital’s flagship fund saw net outflows of $1.6 billion for its fiscal year ending March 31, leaving the fund with $5.4 billion in assets, according to a filing with the Securities and Exchange Commission earlier this month.

Scaramucci, an ardent Trump supporter and fundraiser, sold Skybridge to a team of foreign buyers earlier this year in anticipation of landing a gig with the Trump administration.

The deal is expected to close this summer although Scaramucci’s White House ambitions have been delayed.
It remains to be seen if Scaramucci makes the expected $100 million in profits from selling a declining asset to the Chinese.

Scaramucci may join the Trump White House, currently stocked with billionaire private equity underwriters wanting to help their brethren.  Carlyle co-founder David Rubenstein offered insight as to how to profit in the Trump Age.


Big money boys and politicians share out-sized egos and a twisted symbiotic relationship.  Ackman's long been in the Blue camp.  That's what makes reporting the Biden-Ackman dinner skirmish so odd. 

While the media portrays Joe Biden as the unfairly treated party a few elements don't seem quite right.  It doesn't make sense to me that a grieving father would consider running for office, especially the U.S. Presidency.  There is a time when grief is the work.  It makes less sense that a grieving father would brag that they were the better candidate for the election they skipped.  How can one be better if they were brokenhearted?

I'll leave this as another conundrum in our strange world, where the rich and powerful serve the rich and powerful. Might the disintegration our money obsessed leaders foisted on those below be spreading among the ruling class?