Jan 16 - Overview
-- Carlyle Holdings Finance LLC is an indirect subsidiary of Carlyle
Holdings I L.P., and its notes are guaranteed by Carlyle Holdings I L.P.,
Carlyle Holdings II L.P., Carlyle Holdings III L.P., and The Carlyle Group L.P.
-- We are assigning our 'A-' issuer credit and senior unsecured ratings on
Carlyle Holdings Finance.
-- The outlook is stable. We expect continued growth in fee-paying assets
under management, supporting stable and recurring fee-related earnings.
On Jan. 16, 2013, Standard & Poor's Ratings Services assigned its 'A-' issuer
credit rating on Carlyle Holdings Finance LLC. The outlook is stable. We also
assigned a 'A-' rating on Carlyle Holdings Finance's senior unsecured notes due
The rating on Carlyle and its senior unsecured notes due in 2023 are based on
its stable recurring fee-related income, scale, long track record, proven
fundraising capabilities, and geographically diverse funds. Additional ratings
support comes from its sound liquidity profile, partly as a result of strong
current and expected distributable earnings (realized earnings). Other
supporting factors include our expectation for 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 The Carlyle Group's management and investment teams.
We believe elevated brand ("headline") risk is a result of The Carlyle Group's
scale in the alternative asset management business. Further, the exposure of
its financial performance (primarily realizations) to the economy, key man
risk, and high leverage counter the rating strengths. 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.
Carlyle issued $500 million senior unsecured notes, which are fully and
unconditionally guaranteed by the rated Carlyle Holdings I L.P., Carlyle
Holdings II L.P., Carlyle Holdings III L.P., and The Carlyle Group L.P.
Carlyle intends to use the proceeds from the senior unsecured notes to repay
its revolving credit facility and prepay the initial amortization due under
its term loan, and use the balance of proceeds for general corporate purposes.
We view the repayment and prepayment of debt favorably.
The outlook on Carlyle is stable, reflecting our expectation that it will
continue to grow its fee-earning AUM. This will propel earnings and growth in
distributable earnings, which will enhance liquidity. If assets do not grow
according to our expectations, we would expect management to adjust the cost
structure to maintain profitability (as it has in the past). We could
downgrade Carlyle if its fee-earning AUM declines to less than $100 billion or
if combined leverage increases beyond $1 billion. Although 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 increases earnings from newer segments and limits
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
-- Rating Asset Management Companies, March 18, 2004
Carlyle Holdings Finance L.L.C.
Issuer Credit Rating A-/Stable/--
$500 mil. 3.875% notes due 2023 A-
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
Primary Credit Analyst: Chris C Cary, New York (1) 212-438-1000;
Secondary Contact: Daniel Koelsch, FRM, Toronto (1) 416-507-2590;