Carlyle Is Said to Seek $1 Billion for U.S. Lending Fund

Carlyle Group LP, the world’s second-biggest private-equity firm, is seeking $1 billion to make loans to U.S. middle-market companies, according to two people with knowledge of the plan.

Carlyle GMS Finance Inc. would be regulated as a business-development company and primarily make senior-secured and unitranche loans with floating rates, said the people, who asked not to be identified because the information is private. Unitranche loans combine senior and mezzanine debt. The fund, which Carlyle hasn’t yet registered with the U.S. Securities and Exchange Commission, also will invest in other categories of company debt and in equity.

Randall Whitestone, a spokesman for Washington-based Carlyle, declined to comment.

Private-equity firms are raising capital to take advantage of a pullback in lending by banks to middle-market companies, which can have revenue ranging from $50 million to as much as $1 billion. TPG Capital amassed $1.4 billion for a private business-development company that will eventually go public, according to a person with knowledge of the matter. KKR & Co. is seeking as much as $500 million for a private equity-structured fund that will make senior loans to middle-market companies, said a person familiar with that firm.

Large private-equity firms such as Blackstone Group LP, KKR and Apollo Global Management LLC are diversifying from their traditional leveraged-buyout businesses as they add assets under management.

Return Target

Carlyle GMS Finance, which will use leverage through a $500 million borrowing facility, is seeking returns of 7 percent to 10 percent, according to the people. When capital is invested in new deals, investors will receive shares in the business development company, or BDC, the people said. The BDC is expected to go public within the first five years.

The development company will be managed by Carlyle professionals including Mitch Petrick, who oversees the investment committee, and Linda Pace, head of U.S. structured credit for the firm’s global market strategies unit. Some members of a team from lender Churchill Financial, which Carlyle bought last year, will also make investments. The group invested $2.5 billion in 240 middle-market companies from 2006 to 2011, according to the people.

BDCs are investment firms formed to finance small and midsize companies. They don’t pay income taxes if they distribute at least 90 percent of their taxable earnings to investors.

Carlyle’s global market strategies business, founded in 1999, manages more than $29 billion in assets. It invests in distressed debt and equity, corporate mezzanine, energy mezzanine, emerging market equities, structured credit and long/short credit.

Carlyle, with $156 billion under management as of June 30, is second in assets to New York-based Blackstone.