Kansas Pizza Hut Franchisee Struggles Under Debt

By Michael Hooper

The world's largest Pizza Hut franchisee is struggling under a mountain of debt, weak operating trends, and rising costs for food, labor and wages, according to Moody's Investor Services.

NPC International, of Leawood, Kan., operates 1,232 Pizza Hut restaurants and 391 Wendy's restaurants. Eldridge Industries, owner of Security Benefit in Topeka, is owner of NPC International. Sometimes Eldridge Industries and Security Benefit will invest in a deal together, such as the Los Angeles Dodgers, but Security Benefit does not own any equity or bonds in NPC International, said Joe Wittrock, chief investment officer with Security Benefit.

On Sept. 13, 2019, Moody's Investor Service downgraded the corporate debt of NPC International to junk status, Caa1-PD from B3-PD. Moody's additionally downgraded the company's first lien senior secured revolving credit facility and first lien senior secured term loan to B3 from B2, as well as the company's 2nd lien senior secured term loan to Caa3 from Caa2. The rating outlook is negative.

The downgrade to Caa1 reflects NPC's continued weak operating performance with persistent cost and margin pressure, said Adam McLaren, Moody's senior analyst. High leverage and weak interest coverage, along with elevated capital expenditure requirements have pressured the company's liquidity. For the last 12-month period ended June 25, 2019, NPC's debt-to-EBITDA was high at over 7 times, with the expectation of remaining elevated over the next 12-18 months given the challenging operating environment with pressured same-store sales and labor and margin headwinds (EBITA is Earnings Before Interest Taxes and Amortization).

Moody's said the downgrade reflects NPC's high leverage and modest interest coverage driven by weaker operating trends and cost inflation related in part to labor, wages, commodities, and pricing. Given NPC's high level of capital investment, including re-locations, new units, and remodel initiatives, it is expected that free cash flow will be constrained and liquidity to be weak. 

Moody's rating also considers NPC's limited product offering, concentrated day-part in lunch and dinner and limited geographic diversity. The rating is supported by NPC's multiple brands, meaningful scale within the Pizza Hut and Wendy's franchise system, new advertising partnerships, and dedicated brand management. The company benefits from the support of its financial sponsor, including $50 million of incremental term loan borrowings and $18 million of capital injection thus far in 2019 which provide additional liquidity to enable the company to continue to invest in remodels and re-locations, although NPC will require additional future liquidity to continue to invest at such high levels (inclusive of growth capex).

The negative outlook reflects Moody's view that the company will continue to face margin pressure over the next 12-18 months, which will weigh on operating performance and credit metrics, while investing heavily in remodels, new units, and re-locations continue to constrain liquidity. Performance improvement coupled with additional equity injections from its sponsor or other forms of liquidity could help stabilize the company's outlook, Moody's said.

David Tangeman, a Houston accountant, said investors led by Eldridge Industries paid $1.2 billion for NPC International in late 2017. The year before it was sold, NPC International's EBITA was $127.6 million. Normally, a sale like this would be around 5 to 7 times EBITA, but this sale was closer to 9 times EBITA.

"They overpaid for it," said Tangeman, adding that NPC International was saddled with about $740 million in debt after the deal. He noted investors kicked in $17.5 million through equity plus a new $50 million loan in August.

Pizza Hut was founded in 1958 in Wichita by brothers Dan and Frank Carney. In 1977, Pizza Hut was sold to PepsiCo (NYSE: PEP). Then PepsiCo spun off its restaurant business, including KFC, to Yum Brands (NYSE: YUM) in 1997.

In an interview with Bloomberg Sept. 9, 2019, Todd Boehly, chairman of Eldridge Industries, was asked how he is going to salvage NPC International.

Boehly said, "Right now we're very aligned with Yum. We've got a great relationship with Yum. Yum cares deeply about Pizza Hut, we care deeply about Pizza Hut. There's no magic bullet that's going to change the fact it's been underperforming. It's performed worse than we originally anticipated. But that doesn't change our long term view of what the opportunity is with Pizza Hut. It's a tremendous brand that goes back 50-60 years. If you look at what Pizza Hut stands for people, high quality pizza, great food, great memories. We need to figure out how to make it more mobile, make it easier to get. And compete in a world where convenience is the No. 1 driver, not just quality of food."

Boehly said his strategy is to align with Yum to outperform the historical performance at NPC International.

NPC International was founded by Gene Bicknell of Kansas. But a lot has changed in the pizza business since he owned it. Some of the locations of Pizza Huts were good when they started but now are not in the ideal locations.

While Pizza Hut is growing in the international markets, the restaurants are losing sales in the US.

"In the U.S., system sales declined 2% with same-store sales declining 3% and a 1% net new unit decline. Coming off a solid second quarter, the Pizza Hut U.S. business decelerated in Q3 as changes to our value offerings helped franchisee margins, but had a negative impact on transactions," David Gibbs, Yum CFO and COO, said during third quarter earnings call, according to Seeking Alpha transcripts. "In addition, our previously announced plans to accelerate the transition to a modern delivery asset base in the U.S., while restructuring and upgrading our franchisee base also took a toll on performance. While we strongly believe that these are the right strategies to build the business for the longer term, these moves will introduce some uncertainty in the business performance over the short term, as we expect results to continue to be choppy. We caution, we could see a continuation of soft sales and unit contraction throughout 2020 in the Pizza Hut U.S. business."

Editor's note: Michael Hooper owns stock in PepsiCo (NYSE: PEP)

Muse and Freedom

There's a circular feeling around here

About a girl named Muse and a boy named Freedom

Muse has flowers in her hair and a long flowing dress, a notebook at her side, a phone in her pocket and laughter in her soul.

Freedom is dressed in a poet jacket and he has a rapper's soul, a sing song y way to keep a vibe alive.

Muse and Freedom are cherished by my poetry comrades

They travel together, so strong the bond, we fight for their rights to live among us.

When they sing together, the prairie laughs 
and the sky opens up,
a beautiful vibe hits us just right

The boy named Freedom

He's a beatnik hippie radical lover of words

who smokes a pipe and drinks coffee
feeling a nice groove

He dances in the night

Like a wild tiger

Muse plays her flute, like a songbird in flight,

she carries the vibe higher and higher.
The wind her friend in her artistic journey
colors all around her
sunshine in her eyes

Together Muse and Freedom sing songs against violence, and champion the rapper speech calling for peace and hope for new generations.

Sometimes they are mad to see a new dimension, and mad to dance, mad to talk all night.

They never stop going
until they crash and burn out of fuel

Muse and Freedom, they are my sister and brother,

we poets must keep them alive
take them with us everywhere we go,
like lovers un-separated.

I will keep in my soul,
Muse and Freedom
you are blood to me


--Michael Hooper
Oct. 17, 2019

Fred Phelps And The Literature of a Post-Cult Memoir

By Michael Hooper

The memoir has become a popular genre for writers in this modern era. Rock stars, movie actors, journalists, recovering drug addicts, politicians are all producing memoirs. Add to that the literature of the post-cult memoir documenting the descent and rise from a cult.

Unfollow by Megan Phelps-Roper, and the Girl at the End of the World by Elizabeth Esther, fall into this post-cult genre. Both books are by the granddaughters of the founders of their cults. Both women grew up in a very strict fundamental household. And both somehow found the courage to escape.

Each book hits close to home for me because I live in Topeka, Kan., where my wife and I were both verbally assaulted by the Phelps clan. When they protested at soldiers funerals, I actually sent money to a grieving parent to fight the Phelpses in a lawsuit against them. The lawsuit against the Phelpses' protest at a soldier's funeral went all the way to the Supreme Court. The Phelpses, known for their slogans God Hates Fags and Thank God For Dead Soldiers, won the lawsuit. And I was a member of Elizabeth Esther's grandfather's cult in the early 1980s.

Unfollow is the dramatic look inside of a cult that hurt a lot of people. The author tells the story of Fred Phelps, the founder of the Westboro Baptist Church. Megan Phelps-Roper takes us back to the beginning when Fred Phelps first saw two men come out from the bushes at Gage Park in Topeka. He discovered that gay men met in the park to have sex. Phelps had previously been an advocate for the rights of African Americans. As an attorney he helped them win lawsuits against people and employers for discrimination. But after Phelps was disbarred from practicing in Kansas, he looked for another passion.

When I first arrived in Topeka in 1999 I was shocked to see all of these protesters holding repulsive signs raging against homosexuals. I said something to them at the corner of 10th and Gage, "Why are you doing this? This is terrible." And one protester called me a "fag." 'Oh really, you don't even know me," I said. My wife was going to a midnight mass on Dec. 31, 1999, and they taunted her and called people derogatory names. The Phelpses, many of them lawyers, want you to get angry at them and sue them so they could collect attorney fees. They knew they had the protection of the First Amendment, the right to free speech. But you don't see them protesting in England or Germany, where hate speech is not allowed.

The author Megan Phelps-Roper does a good job describing the hypocrisy of the positions in the church. Jesus says love your neighbor as yourself. Yet how come church members show so much hatred and antagonism toward their neighbors? Jesus says pray for your enemies. Yet Fred Phelps prayed that God would kill his enemies. The Phelpses lied about being at protests in London when they weren't actually there. Yet the Bible says the Lord hates a lying tongue and a false witness that speaks lies. The Phelpses also advocated death for criminals. Yet Jesus said he who is without sin may cast the first stone.

All these hypocrisies finally got to the questioning mind of Megan Phelps-Roper. She tried to question the elders but she was always put down. She was disturbed by the way the elders had disgraced her mother. Her sister Grace wanted a Mac but an elder named Steve said she should get a PC. Steve pestered her parents for weeks afterward arguing that his reasons for remaining with the status quo were worth following. "It seemed embarrassing at the time because it was clear that Steve only cared about the issue because he wanted to be obeyed," the author wrote.

Eventually Megan woke up to all of these hypocrisies and realized that the elders really wanted superiority and control. They had developed a toxic sense of certainty in their own righteousness.

A key moment for Megan is on page 159:

"I crossed a chasm in that split second, pursuing a thought my mind had never truly imagined and now could never take back. With stark clarity I understood that whether the church was wrong or right, I was a monster. If we were wrong, then I had spent every day of my life industriously sewing doom, discord and rage to so many -- not at the behest of God but of my grandfather. I had wasted my life only to fill others with pain and misery. And if the church was right? Then asking those questions and even beginning to consider their implications was an unforgivable betrayal of everyone I had ever loved and the ideals I dedicated my life to defending. In my mind I was a betrayer already."

Megan and her sister Grace eventually left the church. They received help from former members of the church who had left in exile, and a family in South Dakota. They also received help from people they used to argue with, the Booksteins of Jewlicious.com, who took them in and cared for them. It's funny I used to see the Phelpses protest in front of Temple Beth Shalom in Topeka on Friday evenings. Years later, here are the Jews helping two exiles of the Phelps clan. In this case who is loving their enemies?

The story of Elizabeth Esther in the Girl at the End of the World is also very personal because I was a member of that group in 1982-83 led by Rod, Mike and Dave Zach in Hastings and Omaha, Nebraska. Elizabeth was the granddaughter of the founder, George Geftakys based in Fullerton, Calif. They did not believe in celebrating Christmas, they did not believe in employing psychologists; they were fundamentalists who targeted college students because they were vulnerable and wanted a community to be part of. They lived together and made high demands of members, about 20 hours per week of Bible study, prayer meetings and worship. They made women be subservient to men and wear head coverings in meetings. They spanked their children. They took the Bible literally as the Word of God.

Eventually, members of the Assembly began to question the integrity of their leader George Geftakys. A web site geftakysassembly.com exposed the corruption in his ministry. George was removed from the Fullerton Assembly around 2003. George was having adulterous affairs and covering up his son’s domestic abuse. What’s sad is that many people gave over 20 years of their life to this man and his group and now feel ashamed and duped. The geftakysassembly.com says, “It is crushing to realize that for 20 years we gave our lives to something that was wrong on so many levels. We are deeply grieved for the damage we perpetrated on others. Our work on this website is part of our effort to try to make amends in some small way.”

The Zachs would say, “He’s no longer walking with the Lord,” when I asked about a person who stopped coming to meetings. Who are they to judge? How do they know whether someone is walking with the Lord? I finally woke up to their wrongs. Some wrongs I didn’t see right away. They always had a Bible scripture to back of their behaviors. I feel lucky that I got out after about 18 months. My salvation was really my free will, the ability to make decisions for myself.

And that is the heart of the issue: control. Leaders of cults want total control over their members. The Zachs didn't want me to leave Hastings, Neb., they wanted me to stay there and build up their church. I am so glad I had the fortitude to leave!

Megan Phelps-Roper discusses the last days of Fred Phelps when he was removed from the church. He walked out of the church to address the young people running the Equality House, a global symbol of the LGBT rights, across the street. "You're good people," he said to them before he was hustled back inside by church members. Shortly thereafter Fred Phelps was put in hospice and died.

It's interesting how the third generation of the cults mentioned here found themselves inside a place they knew they didn't belong. I wonder how the fourth generation of Phelpses will feel about their behaviors? I still see them protesting from time to time. I hope some day the Westboro Baptist Church either implodes or changes and stops hating gays and starts loving people, all people.

50% to 60% Chance of Recession, Economist Says

                          Ernie Goss

By Michael Hooper

There is a 50% to 60% chance of a recession in the United States in 2020, according to Ernie Goss, economics professor at Creighton University.

The United States needs a trade agreement with China. Without it, farmers are likely to continue to suffer, Goss said Wednesday at Washburn University.

Goss said he disagrees with President Trump how he is handling trade with China. He agrees there is intellectual theft but he isn't sure how to solve it, and Trump hasn't come up with the solution either.

Goss said exports are facing headwinds because of a lack of a trade agreement between the U.S. and China. He said 34% of exports in Kansas are food. That number is 51.6% in Nebraska. For years much of those exports were grain shipped to China. But China has halted some of its purchases of grain from the United States due to trade tariffs enacted by Trump.

So there is substantial risk to the agricultural market if no trade agreement is reached, Goss said.

"This trade war hurts us more than others," Goss said.

Farmers also have suffered losses due to bad weather. He said farm loan defaults are rising. Congress gave a lifeline of $12 billion in subsidies last year to farmers to help them out as a result of the trade wars with China. Congress gave $16 billion to farmers this year. Are they going to give another $18 billion next year? Goss asked.

Manufacturing, agriculture and energy have suffered declines this year, he said. Every other sector of the economy is doing okay.

Interest rates are low, and the Federal Reserve is expected to lower interest rates again. Interest rates in some places like Japan and Europe are negative.

"Fear is gripping the world," Goss said.

The greater fool theory is moving the bond market. People are paying high prices for bonds thinking that prices will go even higher, he said.

Outlooks for returns are modest.

He said stocks' rate of return is around 3%. The farm ETF MOO is about 3.75%. Agriculture land is -4%. Ag equipment -7.8 %. And home price return is just below 3%.

Under Trump, the federal deficit has increased 27%. Young people seem not to care about the deficit. Someday the deficits will result in higher interest rates, higher inflation, and higher taxes, Goss said.

He said the North American Trade Accord should be passed by Congress. The agreement would support trade between the US, Canada and Mexico.

Goss is also principal of the Goss Institute for Economic Research in Denver. He is an expert on the Midwest economy. He is editor of Economic Trends, a monthly economics newsletter.

His talk at Washburn University in Topeka was part of the 2019 Lecture Series in Economics and Free Enterprise.

Lower Rail Volumes Indicate Slowdown In US Economy

By Michael Hooper

If railroad volumes are the tea leaves for the economy, the American economy is likely to slow down in the third quarter.

Total traffic in the first 34 weeks of 2019  on US railroads railroads was 8.6 million carloads, down 3.4% from the same point last year and 9,055,095 intermodal units, down 3.8% from last year, according to the Association of American Railroads.

Traffic in Week 34, ended Aug. 24, 2019, on U.S. railroads fell 5.9% compared with the same week in 2018.

I've been watching these railroad volumes for many years. Short-term changes in volumes don't mean much, but when there is a continuous steady decline in overall traffic -- like there is now -- GDP usually declines. The railroads carry heavy freight such as autos, metals, grains, and merchandise in containers shipped from Asia. Shipment of containers are down for US railroads compared to a year ago.

Intermodal traffic at Union Pacific Railroad was down 4% year-to-date through week 35, according to its weekly carload report on its website.

Union Pacific Railroad reported a decline of 11% in the shipment of intermodal containers in week 35 compared to volumes in week 35 a year ago. UP's third-quarter-to-date shipments of containers were down 10%. Containers with goods or merchandise are often shipped by boat from Asia to ports on the West Coast where Union Pacific and Burlington Northern Santa Fe pick them up and carry them to Chicago and elsewhere.

In an SEC filing on Sep. 4, 2019, Robert M. Knight, Jr., executive vice president and chief financial officer of Union Pacific, lowered UP's outlook for the second half of 2019. The filing says Knight presented at the Cowen & Company 12th Annual Global Transportation Conference. In Knight’s prepared remarks he confirmed the company’s expectation of a sub-61% operating ratio for full-year 2019, while updating the company’s volume guidance, stating that the company now anticipates volume for the second half of 2019 to be down mid-single digits as compared to the second half of 2018, versus a previous estimate of down 2%.

BNSF Railway container traffic declined 4% year-to-date and trailer traffic was down 10% year-to-date, according to its weekly volume reports.

Just about all categories of freight are down so far this year at BNSF except chemicals, nonmetallic minerals, grain mills and petroleum, according to its weekly carload reports. Petroleum volumes were actually up 26% year-to-date at BNSF, which owns tracks in the Dakotas, where there is substantial drilling in the Bakken.

BNSF saw declines YTD in grain, coal, autos, lumber and wood and steel and scrap. Lumber and wood really fell off in week 34 at BNSF, declining 18%, and down 8% third quarter to date. Third quarter ends Sept. 30.

Real gross domestic product (GDP) increased at an annual rate of 2% in the second quarter of 2019, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.1 percent.

The Institute for Supply Management’s manufacturing index fell to 49.1% in August from 51.2% in July.

Any reading below 50% indicates a contraction in activity. This is the lowest reading since January 2016. This means there is a slowdown occurring in manufacturing. Manufacturing is about 11.6% of the U.S. economic output.

Consumer spending accounts for 70% of GDP.

Trade tariffs are likely a driver of the decline in railroad traffic, specifically the container and grain traffic between China and the United States.

Disclosure: Michael Hooper owns shares of Union Pacific (UNP) and Berkshire Hathaway (BRK.B), owner of BNSF Railway.

I Fall Down

I run too hard, I'm a mania of sorts,
I go to extremes, to see explosions of light across the sky, 
to feel love, to see the majestic, the eternal.

I climb too high, I go too far, I say too much.
And now I hurt

I'm slipping down, let me fall, there's no climbing from here

Yet I ask myself, what would life be without the extremes,

without the OCDs, the artist who stays awake 24 hours chasing a muse. Life would be dull for sure.

All the agony 

And hate in this world

Kind of gets me down
with a pain in my side
Now here I am standing on my knees

I'm slipping down, let me fall.

I can't seem to do it any other way

I'm falling down, let me be

I walk into the rain,
just to feel droplets of water on my body
I'm soaked, but I don't mind

Sometimes I just need to 

work myself out of this pain

drink water and rest 
Read 1000 pages

Shower for an hour

and

start dreaming again

I get up and move slowly
I got an idea, now working it
I feel a good vibe going here
Seeing new dimensions, man

Now I start running
faster ever farther
The trail opens wide
I run into fields of flowers
scented by lavender and pine
Sunshine melts my vision
into yellow and gold

I burn burn burn
in the cycle of life
Until I crash again
half alive
on my knees

I crawl, I ache
I cry

I'm slipping down
let me fall
there's no climbing from here

I'm falling down
let me be
there's no climbing from here



--Michael Hooper, August 2019

The Bohemian Summer

A Bohemian summer

Filled with art, love, and adventure

Hiking, cycling, swimming and listening

to nature

Dragonflies all around me

In the deep grass

I get high looking up at the sky

The sun on my face
Dazzling like diamonds
Heat on my skin
warmth all over

I've arrived at the very place I belong

No car, no TV no internet

Just me and the grass 

This park is a place of play and peace

Limited only by our imagination

I paint the flowers

The tiny clover, the water lillies,

The cabin and the sunflower

The pains of my body 

disappear with each brush stroke

The more I paint

 the better I feel

It's the artistic therapeutic 

washing of the soul

the cleansing of the mind

the renewal of change
using new muscles

Art has a way of grabbing
the artist, pulling with all her 
mighty enchantments
and winning.

The image burns so bright
I've got to paint it right
to illuminate its beauty

-Michael Hooper, August 2019

Yellow My World

The clouds disappear

There is a wet luster
On the leaves
after the rain

We are together again
Creating plans
Embracing the sun
Riding down the trail

Birds sing, flowers bloom
butterflies dance
I am alive
With intoxicating oxygen

Astonishing amazement
Just looking at the clouds
Reflected in the waters
Watching fish below the surface
Lily pads all around me

I paint Ian, the backwoods hippy poet

I paint the colors of his eyes

Green brown and gold with

A sparkle of laughter and love

Enchantment is my religion

I am excited by the green colors of the forest,

the shades of blue in the sea,

the crimson red in the rocks.

Yellow my world

Green me up

Brown me gold

Paint my eyes

The color of the sky

Paint my face 

The color of my race

Time is running

Fast against my body

So I paint while
I can
While the image is aglow

--Poem, photography and artworks by Michael Hooper, summer 2019

The Hyper Creative Soul: Ginsberg, Dingman & Lazaroff

Allen Ginsberg

By Michael Hooper

The artist is the sum of multiple parts. As they develop their own style, the students of art borrow from the masters of their craft, emulating techniques and ideas that will help them achieve their artistic goals.

My friend artist Joe Mettenbrink said there is a person behind my recent immersion into oil painting: The spirit of Arlen Lazaroff, a Nebraska poet and friend of mine for 20 years.

I was shaken by the thought, but Joe is probably correct. I made a turning point in my portrait drawing after I painted Arlen, his spirit was with me as I drew and painted him. I loved Arlen's total devotion to art and poetry, making paintings, found art displays, poems, stories and books, he was committed to art 24 hours per day, seven days a week. He worked on the art to the exclusion of everything else, including his health, like Vincent Van Gogh (Arlen died at age 46 in 2005). Arlen's artistic activism was sometimes crude but made a statement. His End of Sex is the Beginning of a Family was censored in Fremont, Neb., along with another piece by Margery Coffey. Arlen wrote the ghost town is a metaphor for the world's abandoned and forgotten people and places.

Photo of Arlen Lazaroff by Eadweard R. York

Arlen said he wanted to live as a poet and work on poetry 100% of the time. He failed at most of his jobs until he finally found his dream job selling records for Kanesville in Council Bluffs, during the final two years of his life.

Another influence in my life is Harry Dingman III, my brother-in-law, an artist and musician completely devoted to an artistic lifestyle. Harry showed us a way to make art in everything, including family, food, friendships, exercise, yoga, travel. Sketchbook always nearby, he documents life with drawings and paintings; everything Harry does is an opportunity for an artistic experience. His guitar style is distinctive yet versatile in the bands For Against and The Millions and Battleship Grey. When For Against toured Italy I was fortunate to go along and see this La Dolce Vita, the sweet life. The band was showered with affection. One night we had dinner with a group of artists, poets, writers, journalists and musicians and talked for three or four hours and ate all this fabulous food, one course after another all night with great wine and beautiful conversation. This was Food and Dining as Art. I met an Italian poet who was writing a book about Robert Smith's poetry in The Cure. WTF? This is way too cool.

Harry Dingman and Jeff Runnings in Brooklyn, NY. Photo By Michael Hooper

Harry and I toured The Vatican and saw the sculpture called the Pieta by Michelangelo, the luminescent Mother Mary with Jesus. The sculpture of granite is lifelike. All of this art left an indelible impression on me.

Meeting Allen Ginsberg was life altering in the early 1990s. He and I had a brilliant conversation together in the short time that we talked, he signed my book of his poetry and he drew a picture of a flower. He exuded art. He was art. He is an icon. He inspired a generation of radicals, beatniks and fairies. My encounter with him still lives. He asked me what brought me to Lincoln, Neb., and I said you, I've always wanted to meet you. He asked me what I did and I told him I was a reporter at the Grand Island Independent writing about rural life in 14 counties in central Nebraska. He said he once lived in a commune in a rural part of upstate New York with his lover Peter Orlovsky. Beatniks followed them there, and they had parties and worked on poetry and art projects. I especially remember how Allen Ginsberg looked into my eyes and down into my soul. I felt a lasting connection. That is why I want art with a soul, with eyes looking back at me.

I admired Ginsberg's way of gathering up a storm of poets and artists to march for causes that were important to him including fighting censorship, civil rights, the legalization of marijuana and saving the environment.

I learned a lot from these people. In a way I'm still emulating and learning from them while trying to come up with my own voice, my own distinctive style. This is perhaps the hardest challenge for every artist. They say there is nothing new under the Sun. Yet we create anyway, perhaps for the joy of creating, for the meaning it leaves behind. I think the artist must take chances in order to be independent, free, unique and an enlightened soul.

Life is short. Time is our most precious resource. I couldn't think of a more meaningful way to live than an artistic life devoted to the highest and best achievement in work, family, friends, art and life. It is the art of conversation, the engaging with all things in nature, people, animals, trees and land. We learn that to achieve great art, we must love deeply and profoundly. The greatest art is made with passion, desire and love. And that is the art of life.

Security Benefit Is Todd Boehly's Bank For Deals

By Michael Hooper


Security Benefit has become Todd Boehly's source of cash for investment deals.

Similar to Warren Buffett at Berkshire Hathaway, Boehly is using an insurance company's cash to make bets on other investments.

Security Benefit has invested in assets managed by Eldridge Industries, including real estate in Los Angeles like the Beverly Hilton, media companies like Dick Clark Productions and the Hollywood Reporter, plus the Los Angeles Dodgers. Eldridge also has invested in NPC International in Overland Park, Kan., which owns 1,237 Pizza Huts, plus 394 Wendy's Restaurants. NPC was founded by Gene Bicknell of Kansas.

Boehly, 45, is chairman and chief executive officer of Eldridge Industries LLC, which owns Security Benefit and SE2, both based in Topeka. He is also a 20% owner of the Los Angeles Dodgers. 

Eldridge Industries  describes itself as a private investment firm that manages businesses across diversified industries, headquartered in Greenwich, CT, with offices in New York, London, and Beverly Hills. 

Boehly and Guggenheim Partners invested some $400 million into Security Benefit in 2010 when the company was struggling during the financial crisis that began in 2008. Now Security Benefit earns nearly that amount of money in profit every year. Boehly later bought Security Benefit from  Guggenheim and put it inside of Eldridge Industries, effective Feb. 1, 2017.

The proceeds from the sale of annuities sold by Security Benefit are used for investments. The strategy is to make a high enough return to cover the expenses and obligations of each annuity with profit leftover for Security Benefit. The income from mortgages, bonds and investments provide cash flow to pay for annuity obligations.

In 2018, Security Benefit earned $370 million. And in 2017, the company earned $388 million (which does not include the month of January 2017, when it was still controlled by Guggenheim), according to the company's filing with the SEC. That document shows Security Benefit has a book of $3.2 billion in "related-party transactions," mortgages and investments in media, hotels and real estate in Los Angeles and Europe.

Page 98 of the SEC filing says the $3.2 billion in "related-party transactions" are investments in related parties, and are also included in mortgage loans and fixed maturity investments under consolidated balance sheets.

For example, Security Benefit listed investment of $215 million to American Media & Entertainment, LLC, a Los Angeles-based media group. Security Benefit owns a piece of KLAC-AM 570 in Los Angeles.

Security Benefit also provided $351.6 million to American Media Productions, LLC, a startup media firm launched by the Los Angeles Dodgers. Security Benefit began its partnership with the Los Angeles Dodgers in 2014. The Security Benefit Field Level includes 11,000 seats in the stadium.

Security Benefit provided $595 million to Cain International LLC, a real estate investment group that owns the Waldorf Astoria Beverly Hills and the Beverly Hilton, as well as properties in Europe.  

Many of the Security Benefit investments are to CBAM LTD, an Eldridge Industries company that is an alternative investment adviser and manager of collateralized loan obligations. CBAM has about $11 billion of assets under management, a lot of it from Security Benefit.

The book of $3.2 billion in investments/mortgages is just under the $3.3 billion in equity in Security Benefit. That seems a bit high of insider-related loans relative to the total assets and total equity in the company, said David Tangeman, a Houston accountant and native of Kansas. It's not a problem if the securities perform well.

Eldridge Industries is named after the Eldridge Hotel in Lawrence, according to an article by Barrons. When Boehly first came to Topeka in 2010, the hotel where he was supposed to stay was closed at the front door, when he arrived in the dark, early morning, the article said. So he went across the street and got a room at another hotel. But that room was smoky. So he took some blankets and spent the night on a park bench. The next time he came for a visit, he got a room at the Eldridge Hotel in Lawrence, the article said.

Another way Eldridge Industries benefits from Security Benefit is by offering financial advisory services, for which Security Benefit paid $93.9 million in 2018 to Eldridge. Eldridge also has received $30 million in dividends in 2018 and $20 million in dividends in 2017 from Security Benefit. Despite these payments, Security Benefit has received about $950 million in new capital from Eldridge in the past two years, to support the growth of Security Benefit and improve its ratings.

The improvement of the balance sheet has earned the company excellent financial strength ratings by Standard & Poor's and A.M. Best, both offering A- ratings. The ratings have steadily improved since 2009 during the financial crisis.

Security Benefit also filed financial information to regulators in Kansas.

Security Benefit has about 1,300 employees with about 1,100 in Kansas. The firm focuses on the U.S. retirement market with fixed, fixed-indexed and variable annuities and mutual funds.

The Standard & Poor's 500 Index did not perform well in 2018 dropping -4.38%. And while stocks didn't do well in 2018, most bonds didn't fair much better. Long-term bonds and intermediate-term bonds lost value in 2018 because of rising interest rates implemented by the Federal Reserve Board. Short term bonds actually performed best in the bond sector, posting modest gains in 2018. Security Benefit owns a lot of bonds, including government and commercial securities.

In 2019, so far, the value of intermediate and long-term bonds have recovered somewhat as the Fed has slowed down its projections of raising interest rates and may curtail or even cut interest rates. However GDP grew 3.2% in the first quarter of 2019, blowing away estimates by analysts, raising concerns that the Fed may consider more interest rate hikes.

Security Benefit has $37.4 billion assets under management. Annual revenue was about $4.2 billion in 2018. SE2 has about $90 billion of assets under administration.

When retirees consider how to fund retirement, sometimes they turn to mutual funds or annuities, or a combination of both. Security Benefit is in a great position to offer multiple products in the retirement sector including mutual funds and fixed and variable annuities. Security Benefit's SE2 subsidiary takes care of administration of annuities for a variety of clients and financial firms.

Mike Kiley has been CEO of Security Benefit since September 2011.

David Tangeman contributed to this article.