Lenders who funded Carlyle Group LP’s $4 billion buyout of Johnson & Johnson’s medical diagnostics division 18 months ago are feeling the pain from the company’s sinking earnings.

Prices on the obligations backing the debt-fueled acquisition of Ortho-Clinical Diagnostics Inc., which was Carlyle’s largest purchase of 2014, have plunged to new lows as an important measure of the company’s earnings slumps, according to people with knowledge of the matter.

Since the purchase, the company has delayed an earnings report, changed its chief financial officer, and last month it told lenders it wouldn’t meet its 2015 earnings forecast, the people said, asking not to be identified because Ortho-Clinical doesn’t disclose its financial information publicly. The company’s earnings have dropped to their lowest level in at least five years, according to one of the people and documents the company used to market its debt to investors in May 2014.

Carlyle acquired the unit, which provides medical tests and equipment for disease screening, from J&J with more than 80 percent of the deal financed using credit. In 2014, the median debt financing level for buyouts valued at more than $1 billion was 58 percent, according to according to Seattle-based data provider PitchBook Data Inc.
 
Kristie Bouryal, a spokeswoman for Ortho-Clinical, and Randy Whitestone, a spokesman for Carlyle, declined to comment.

Earnings Plunge

Ortho-Clinical told lenders last month that it had a 14 percent drop in earnings before interest, taxes, depreciation and amortization to $104 million in the three months ended Sept. 30, the people said. This followed an 18 percent decline in the same period a year earlier. The company also said that it expects to fall short of its projected earnings for the year of about $450 million. That’s down from as much as $592 million in 2011.

After Carlyle took control, the company estimated its Ebitda would climb to more than $600 million within two years, the deal’s marketing documents show.

The company’s $1.3 billion of 6.625 percent bonds sunk to 68.1 cents this week, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The size of the notes was increased by $150 million when they were sold to allow Carlyle to reduce its equity contribution to the deal, according to a Moody’s Investors Service report.

In addition, a $2.2 billion term loan backing the spinoff fell to 87 cents on the dollar, according to prices compiled by Bloomberg.

Carve Outs

Carlyle’s struggle to sustain Ortho-Clinical’s profit levels comes as it seeks to carry out a similar carve-out with its proposed $8 billion acquisition of Veritas, Symantec Corp.’s data-storage business. Investors anticipate that banks will once again seek to sell the debt backing that deal after reluctant buyers pushed underwriters to postpone the offering in November. Carlyle has committed financing for the purchase, so it will proceed regardless of whether banks can offload the obligations to investors.

Carving out business divisions into standalone companies, which Carlyle has done since its founding in 1987, “can be attractive in the right hands, particularly if the assets were ignored or under-invested in while under a corporate umbrella,” the firm said in a November health care outlook report while citing its Ortho-Clinical acquisition as an example.

Ortho-Clinical missed a deadline last year for reporting its third-quarter 2014 earnings and disclosed them late, citing accounting complexities at the time after the split from J&J. In May, the company announced the departure of its CFO Jeff Capello and replaced him with Charles Wagner, who held a similar role at Bruker Corp., according to a company statement.

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