Private equity enters the emergency room

One thing to start: The Phoenix Suns are on track to set a record price for the sale of a National Basketball Association franchise, with mortgage lending billionaire Mat Ishbia nearing a $4bn deal to acquire the team and its women’s counterpart.

In today’s newsletter:

• The private equity doctor is in

• Boehly’s crypto dilemma

• Bond bears’ big bet on Japan

(Anti)trust me, I’m a doctor

To understand how private equity is changing US healthcare, it helps to consider the following scenario.

Let’s say you, a youthful reveller, consume a chilli dog, perhaps washing your feast down with other potent victuals.

A short while later, you check yourself into hospital with a complaint that your doctor delicately characterises as epigastric pain.

Over the next hour you’ll be subjected to a battery of tests. Partly these are intended to reassure you that you are not dying. But mostly they make sure your doctor doesn’t have to worry about a malpractice lawsuit.

A heart attack will swiftly be ruled out. So will other unlikely possibilities, like a stomach ulcer or a cardiovascular disorder. After an unpleasant few hours, you’ll probably be sent home with an indigestion tablet.

If you’re in the US, that’s when the financial recriminations will begin.

On one side of the battle will be the company that employed your doctor. On the other will be a health insurance giant.

A couple of decades ago, that fight would’ve been totally uneven. Most ER medics were employed by co-operatives run by the doctors themselves.

But in today’s financialised healthcare system, it’s more likely to be a private equity-owned “physician staffing” company. A typical case is Texas where, DD’s Mark Vandevelde reports, three PE-backed companies employ physicians that staff about one-quarter of the state’s 384 emergency rooms.

One of them, TeamHealth, was sold to Blackstone for $6.1bn in 2017. Another, Envision, was acquired by KKR for $9.9bn the following year.

The Biden administration’s newly assertive team of antitrust regulators has been probing these kinds of deals of late. Critics say a handful of Wall Street-backed companies have the power to control how emergency medicine is practised and paid for. (DD has been looking into this issue, too. Get caught up here.)

But some doctors and executives argue that the growing market power of consolidated physician staffing groups is a good thing. How else, they ask, can doctors hold their own in daily negotiations on bills with powerful insurers?

The chilli dog scenario isn’t entirely hypothetical. A similar case is described in a lawsuit in which UnitedHealthcare, America’s biggest health insurer, accuses Blackstone-owned TeamHealth of levying $100mn in bogus charges, including a $1,712 bill for treating a 23-year-old patient who was sent home with antacid.

TeamHealth is fighting back with lawsuits of its own, claiming UnitedHealthcare unfairly refuses to pay a large proportion of its bills.

It’s an argument that has met with some success, concerns about competition notwithstanding. Last year, a Nevada jury ordered UnitedHealthcare to pay a TeamHealth subsidiary $60mn in compensation and punitive damages connected to one such claim.

Todd Boehly’s crypto meltdown

Things are not going great for Todd Boehly. The US financier’s recently acquired Chelsea Football Club has lost its last three matches and its manager Graham Potter is struggling to whip the side’s mishmashed bunch of “impulse purchases” into shape.

Now, Boehly has found himself playing in another losing game: the crypto meltdown.

The US billionaire’s investment group Eldridge led a $600mn debt raise for crypto conglomerate Digital Currency Group last November. A year later, the financier may be regretting his investment, the FT’s Nikou Asgari revealed.

Founded in 2015 by former Houlihan Lokey banker Barry Silbert, DCG is one of the largest and earliest investors in crypto projects. It was valued at $10bn last year, and has been backed by investors including SoftBank and Ribbit Capital.

DCG’s subsidiary, crypto broker Genesis, suspended withdrawals after the collapse of FTX and is racing to raise capital and avoid bankruptcy. Genesis said last month it had no plans to file bankruptcy “imminently”. (Reassuring words for any investor . . .)

For Eldridge, $350mn of its senior secured term loan remains outstanding and if Genesis goes bankrupt, that immediately falls due.

It’s unclear whether DCG has the capital to pay Eldridge back: it owes $1.5bn to Genesis itself (in a web of investments detailed here), and Genesis owes more than $1bn to clients, including customers of the Winklevoss twins’ exchange.

Eldridge’s loan ranks higher than other debt that DCG has, and has certain preference rights — meaning it would have to be repaid first in any situation.

DCG said its relationship with Eldridge “has no bearing on any outcome at Genesis”.

Eldridge is working with DCG to avoid losing the investment, alongside other investors, among them Francisco Partners, Capital Group and Davidson Kempner.

Boehly has backed several other crypto projects, including infrastructure company Cross River and wallet provider Blockchain.com. After splashing out on one of the most expensive sports takeovers ever, he may be hoping his other investments don’t end up so pricey.

The ‘widow maker’ trade has some survivors

Betting against Japanese government bonds is such a risky endeavour, the trade has been dubbed the ‘widow maker’.

Fund managers who shorted JGBs in 1993, 2003 and 2013 sustained huge losses with some having to shut shop. But fast forward another decade and the curse may have been broken.

The Bank of Japan on Monday made an unexpected change in how it controls its government bond market by allowing long-term yields to fluctuate from about minus 0.5 per cent to 0.5 per cent, from minus 0.25 per cent to 0.25 per cent previously. The move sent bond prices down, handing a windfall to macro traders who had built short positions in JGBs.

Firms such as BlueBay Asset Management, Neuberger Berman and Caygan Capital were convinced that the BoJ would be forced to relax its cap on bond yields following aggressive rate rises this year by the Federal Reserve that sent the Japanese yen down to a 25-year low.

“It was a question of when, not if,” said BlueBay chief investment officer Mark Dowding.

The BoJ’s decision has set off the biggest sell-off in Japanese government bonds in almost two decades.

For investors who bet that the yen would rise while bond prices fell, it was an even bigger windfall. “We were long yen . . . but we closed that position too early when they intervened, so we didn’t have the FX position on as well,” said Dowding, referring to moves beginning in September to prop up the currency.

“If we had then I think we’d be in the pub by now.”

Job moves

• Win Bischoff is stepping down as the chair of JPMorgan Securities, the bank’s main operating business in the UK, after a seven-year term, according to Bloomberg. He will be replaced by Timothy Flynn, CEO and chair of KPMG’s US firm and a board director at JPMorgan.

• Pawan Passi and Charles Leisure, two bankers on Morgan Stanley’s block trading desk previously placed on leave, parted ways with the lender this month amid a US probe into their group’s work, Bloomberg reports.

• Citigroup has named Sirisha Kadamalakalva as global head of artificial intelligence investment banking, based in San Francisco. She joins from AI group DataRobot.

• Fried Frank has named Andrew Rearick as a partner in its M&A and private equity practice, based in London. He joins from Debevoise & Plimpton.

Smart reads

Doom scrolling The key difference between Twitter and Elon Musk’s other ventures is that when it comes to the social media group, he’s lacking a grand vision to distract investors from what little progress is actually being achieved, writes Business Insider.

PE 2.0 Private equity used to abide by a simple formula, writes the FT’s Helen Thomas: buy, fix, sell. Years of cheap money and booming interest in private asset classes has made things more complicated.

Debt derby In Silicon Valley where venture capital funds have dried up, the race to clinch alternative financing deals is on, the FT reports.

Spac attack Palantir helped fuel the blank-cheque boom by investing in Spac-listing start-ups that used its software. That strategy has backfired, the Wall Street Journal reports.

News round-up

Elon Musk actively searching for a new Twitter CEO (CNBC)

FTX seeks to claw back Sam Bankman-Fried’s political donations (FT)

Sixth Street leads $2.3bn debt package for Maxar Technologies buyout (FT)

Billionaire Oleg Deripaska’s Sochi hotel complex seized after Russian court order (FT)

India overtakes China in M&A fees for western banks for first time (FT)

Bankers’ pay boosted by deferral rules, say BoE advisers (FT)

Adler’s restructuring plan fails to get bondholder approval (Bloomberg)

Wells Fargo to pay $3.7bn over loan violations (FT)

Credit Suisse leads $34bn dealmaking fee slump in 2022 (Financial News London)

Brenntag/Univar: customers may vote against deal with their feet (Lex)