Carlyle Repays Debt Sold to Abu Dhabi for Pre-IPO Payout

Carlyle Group LP (CG) repaid the remaining balance of $500 million of subordinated notes that it sold to Abu Dhabi in 2010 to finance a payout to owners before its initial public offering.

The firm borrowed $263.1 million to retire $250 million of notes sold to Mubadala Development Co. in December 2010, Washington-based Carlyle said in a filing today with the U.S. Securities and Exchange Commission. The amount, borrowed on March 1, included a $10 million premium and accrued interest of $3.1 million.

Carlyle is retiring the debt to cut borrowing costs and avoid conversion of the notes at a discount, as it prepares to join rivals Blackstone Group LP (BX) and KKR & Co. (KKR) as a publicly traded company this year. The firm paid out most of the proceeds from the Mubadala investments to its owners in 2010, even though it said initially it would use part of the money to expand investment products.

The subordinated debt paid interest at an annual rate of 7.25 percent and was convertible into Carlyle shares at a 7.5 percent discount to the IPO price, if it hadn’t been repaid. As part of the transaction, Carlyle issued a 2 percent equity stake to Mubadala valued at about $200 million.

About 80 percent of the proceeds, or $398.5 million, was distributed to the private equity firm’s current owners, Carlyle disclosed in a September filing. The owners include the firm’s founders, David Rubenstein, Daniel D’Aniello and William Conway, along with Mubadala and the California Public Employees’ Retirement System, also known as Calpers.

‘Liquefy’ Stake

Rubenstein said last month one of the reasons he is taking his firm public is to “liquefy” his stake.

“When you create value, ultimately you want to liquefy and get the benefit of that,” Rubenstein said. “I’m committed to giving away the bulk of my money. If I have money that is available to me as a result of some factors, that’s what I’m going to do with it.”

Carlyle expanded its list of IPO underwriters to include 21 banks in total, including Bank of America Corp., Barclays Plc, Deutsche Bank AG, Goldman Sachs Group Inc. (GS), Morgan Stanley and UBS AG, on top of lead underwriters JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Credit Suisse Group AG. (CS) Carlyle plans to list shares on the Nasdaq under the symbol CG. It hasn’t set a price range or the number of shares it aims to sell.

Profit Fell

Net income fell to $1.36 billion last year from $1.53 billion a year earlier, Carlyle said in today’s filing. Economic net income, a measure excluding some costs and reflecting strength or weakness of a firm’s management fee income, fell 18 percent to $833.1 million, compared with $1.01 billion in 2010.

Distributable earnings more than doubled to $864.4 million from $342.5 million in 2010, following $165.3 million in 2009. Full-year revenue increased to $2.85 billion from $2.8 billion, and Carlyle’s assets under management rose to $147 billion from $107.5 billion.

Carlyle returned $18.8 billion to investors during the year, more than three times its distribution the year before, according to the filing. The firm has $37.5 billion in capital commitments, or “dry powder.”

New Directors

Carlyle also nominated seven new members to its board of directors, including William Shaw, former vice chairman of Marriott International Inc.; Jay Fishman, chairman and chief executive officer of Travelers Cos.; James Hance, former Bank of America chief financial officer; Lawton Fitt, a former Goldman Sachs partner; Janet Hill, a principal with Hill Family Advisors and mother of professional basketball player Grant Hill; Edward Mathias, a Carlyle managing director; and Thomas Robertson, dean of the Wharton School at University of Pennsylvania. They join the three founders as well as Chief Operating Officer Glenn Youngkin, CFO Adena Friedman and Jeffrey Ferguson, the firm’s general counsel.

Mubadala, an investment vehicle owned by the Abu Dhabi government, originally acquired a 7.5 percent stake in Carlyle in October 2007, paying $1.35 billion in a deal that valued the buyout firm at $20 billion. Mubadala received a 10 percent discount as well as protection against a drop in the value of its holdings.

Revolving Credit Line

Carlyle increased the revolving portion of its bank loan agreement to $750 million last September from $150 million and used the expanded credit line to repay half of Mubadala’s notes the following month. As part of the transaction, Carlyle also repaid $5 million of accrued interest and a $10 million premium to Mubadala.

Interest on the amounts borrowed under the revolving credit line would be about $3.25 million less per quarter than that on the redeemed subordinated debt, Carlyle said in an amended IPO filing in February. That estimate was based on the London Interbank Offered Rate, or Libor, as of Oct. 20, the firm said.

Carlyle is the second-biggest private equity firm by assets under management behind Blackstone, with stakes in companies including Dunkin’ Brands Group Inc. and Nielsen Holdings N.V. The three founders received a combined $413 million last year, according to a January regulatory filing.

Blackstone, KKR

Blackstone, which oversees about $166 billion, said last month that 2011 profit was $1.39 billion, down 2 percent from $1.42 billion a year earlier. The New York-based firm, which went public in 2007, said it deployed a near-record $16 billion during the year and returned $9 billion to investors.

KKR, which went public in 2010 and oversees about $59 billion, posted profit of $502.9 million for the year, compared with $1.93 billion in 2010. The New York-based firm attributed the decline to market volatility that slowed gains in the firm’s holdings.

Stephen Schwarzman, Blackstone’s CEO, earned $213.5 million in pay and cash dividends last year, the firm said in a recent filing. KKR said its co-CEOs, Henry Kravis and George Roberts, received $94 million each.

To contact the reporters on this story: Miles Weiss in Washington at mweiss@bloomberg.net; Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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