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.