TEXT-S&P assigns Carlyle Group 'A-' rating

Fri Jan 4, 2013 4:07pm EST

Overview
     -- Carlyle Holdings I L.P., Carlyle Holdings II L.P., Carlyle Holdings 
III L.P., The Carlyle Group L.P., and subsidiaries have a strong track record 
as an alternative asset manager, significant, stable, and recurring 
fee-related income, and proven fundraising capability. 
     -- As a result, we are assigning our 'A-' rating to Carlyle Holdings I 
L.P., Carlyle Holdings II L.P., Carlyle Holdings III L.P., The Carlyle Group 
L.P., and subsidiaries. 
     -- The outlook is stable. We expect continued growth in fee-paying assets 
under management, supporting stable and recurring fee-related earnings.

Rating Action
On Jan. 4, 2013, Standard & Poor's Ratings Services assigned its 'A-' rating 
to Carlyle Holdings I L.P., Carlyle Holdings II L.P., Carlyle Holdings III 
L.P., The Carlyle Group L.P., and subsidiaries. The outlook is stable.
Rationale
The ratings on Carlyle Holdings I L.P., Carlyle Holdings II L.P., Carlyle 
Holdings III L.P., The Carlyle Group L.P., and subsidiaries (collectively 
referred to as Carlyle) are based on Carlyle's stable and recurring 
fee-related income, scale and long-term successful track record as an 
alternative investment manager, proven fundraising capabilities, and 
geographically diverse array of funds. A sound liquidity profile, partly as a 
result of strong current and expected distributable earnings (realized 
earnings) supports the rating. Other supporting factors include: our 
expectation of continued growth in fee-earning assets, substantial accrued 
performance fees and uncalled limited partner commitments (dry powder), and, 
to a lesser extent, the side-by-side investments of Carlyle's management and 
investment teams.

Carlyle is among the world's largest and most diversified alternative asset 
managers, with about $157 billion of assets under management (AUM) in 101 
funds and 64 fund-of-funds across six continents and 11 industries (as of 
Sept. 30, 2012). Carlyle operates four principal business segments: Corporate 
Private Equity, Global Market Strategies, Real Assets, and Fund-of-Funds 
Solutions. Closed-end carry funds and collateralized debt obligation funds 
typically have a 10-year life and represent the bulk of AUM. This results in 
stable, recurring, and predictable fee-related earnings. The limited partner 
investor base is global and diverse. It consists of more than 1,400 investors 
from 75 countries. The firm has consistently raised funds throughout market 
cycles, and it derives more than 90% of limited partner commitments from 
repeat investors. Carlyle has a 25-year global track record of generating 
gross internal rate of return of 31% on realized and partially realized 
Corporate Private Equity investments as of Sept. 30, 2012. The firm has 
achieved an aggregate Corporate Private Equity multiple of invested capital of 
2.6x since inception on realized and partially realized transactions as of 
Sept. 30, 2012. It has dry powder of more than $39 billion as of Sept. 30, 
2012, which we believe positions the firm well to capture future investment 
opportunities. Its "One Carlyle" edge refers to the ability to leverage its 
global network by sharing investment expertise across multiple investment 
disciplines. The firm has fostered (and rewards) a culture of information 
sharing, thus enhancing deal sourcing, due diligence, and its competitive 
position. 

Countering the ratings strengths are elevated brand ("headline") risk as a 
result of its scale in the alternative asset management business and the 
exposure of its financial performance (primarily realizations) to the economy. 
Negative investment performance over time could also harm its future 
fundraising abilities and brand--in addition to causing earnings volatility. 
Also countering the ratings strengths is high leverage relative to its peers. 
As of Sept. 30, 2012, Carlyle had loans payable of $500 million and an undrawn 
$750 million revolving credit line. However, our projection of debt leverage 
as of Dec. 31, 2012, will increase by about $384 million as a result of 
funding a recent acquisition. We are willing to accept higher leverage for the 
rating based on our projected stability of fee-related earnings, substantial 
accrued performance fees, and the potential for future distributable earnings 
that Carlyle can use to reduce debt. Like its peers, Carlyle continues to be 
led by its three founding partners. David Rubenstein leads the fundraising 
efforts, and Dan D'Aniello and Bill Conway Jr. are instrumental in the 
investment decision-making process. All three serve on the executive 
committee. Given their importance, we consider Carlyle to be somewhat subject 
to key-man risk.

Outlook
The outlook on The Carlyle Group is stable. This reflects our expectation of 
continued growth in fee-earning AUM, propelling earnings and growth in 
distributable earnings, enhancing liquidity. Should assets not grow according 
to our expectations, we would expect management to adjust the cost structure 
to maintain profitability (as it has done in the past). We could downgrade 
Carlyle if fee-earning AUM declines below $100 billion or if leverage 
increases beyond $1 billion. While we are unlikely to raise the rating over 
the next 12-24 months, we could consider an upgrade in the longer term if the 
firm grows earnings from newer segments and limits leverage.  
Related Criteria And Research
     -- Rating Private Equity Companies' Debt And Counterparty Obligations, 
March 11, 2008
     -- Counterparty And Debt Rating Methodology For Alternative Investment 
Organizations: Hedge Funds, Sept. 12, 2006

Ratings List
New Rating

The Carlyle Group L.P. and subsidiaries
Carlyle Holdings I LP
Carlyle Holdings II LP
Carlyle Holdings III LP
Issuer Credit Rating                  A-/Stable/--       



Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.