Not everything private equity giant Carlyle Group touches turns to gold.
According to knowledgeable sources that spoke to Laura J. Keller of Bloomberg, Sequa Corp., an aerospace parts firm controlled by Carlyle, spent almost half of its cash in the last quarter as earnings fell and expenses mounted with a recently acquired unit.
Andrew Farrant, a spokesman for Florida-based Sequa, and Randy Whitestone, a spokesman for Washington-based Carlyle, refused to comment for this story.
DG Value Surges On Recovery Plays
According to a copy of the firm's February investor update, Dov Gertzulin's DG Value Partners returned +4.48% net for the month of February, which ValueWalk has been able to review. Q4 2020 hedge fund letters, conferences and more Following this performance, the firm has returned +8.32% net for the year to the end of February. Read More
More on problems at Carlyle’s Sequa Corp
Privately-held Sequa doesn’t publicly disclose its financials, but the Bloomberg sources said management told holders of its nearly $1.9 billion of debt last week that it used up nearly $36 million of its cash and had just under $45 million left as of June 30th.
Not surprisingly. prices on Sequa’s debt dropped notably. The firm’s $1.3 billion of term loans were off over 1.8 cents on the dollar last week to drop to 86.43 cents, according to Bloomberg data. The same loans were trading as high at 98.1 cents on the dollar earlier this spring.
Another $350 million of 7% unsecured bonds maturing December 2017 plunged 13.8 cents to hit a record low of 55 cents on the dollar just past noon Tuesday, according to the bond-price reporting system of FINRA.
Of note, Carlyle took Sequa private in a $2.7 billion LBO in 2007, paying a 50% premium when the deal was announced. However, gradually weakening earnings have made it hard to pay off debt. Ratings agency Standard & Poor’s dropped Sequa’s credit rating to seven notches below junk in April, noting that Sequa’s financial commitments were “unsustainable.”
Secondary aircraft part manufacturers have been pinched over the last few years as manufacturers of the original engine such as General Electric and Rolls-Royce Holdings have moved into the parts business. Analysts also point out that companies that sell secondary parts have been hurt by the slowdown in emerging markets that has led airlines across the globe to postpone both repairs and upgrades.
The sources also emphasized that a good bit of the cash burn related to higher than projected expenses connected to the November 2013 acquisition of Trac Group.
Providing some insight into the scale of the problem, the sources noted that Sequa’s second-quarter adjusted earnings before interest, taxes, depreciation and amortization dropped 26% to $38.9 million from close to $53 million in the second quarter of 2014.
This is just the latest news of troubles at Carlyle. Recently, the firm had some difficulties at Claren Road and Vermilion.