Carlyle Group LP (CG), in a transaction nine months before it filed to go public, saddled itself with debt to pay owners including William Conway, Daniel D’Aniello and David Rubenstein a $398.5 million tax-deferred dividend.It's called monetization, which involves adding millions to Billionaires' accounts. Guess who bears the burden?
The deals, which echo the dividend recapitalization private equity managers use to extract cash from the companies they acquire, leave Carlyle’s future shareholders with the cost of servicing the debt.It's the DBD way.
By financing the dividends with debt, Carlyle’s founders can receive the full amount without facing an immediate tax bill, and without having to sell shares in the IPO. Under Internal Revenue Code regulations for partnerships, the owners can defer paying taxes on the distribution until the debt is retired.Sweet! Recall that President Obama wants private equity to solve America's infrastructure ills, as well as heal our ailing healthcare system. They'll milk those for cash, just like they did with their company.
Update 2-18-13: Carlyle co-founder William Conway podcast on dividend recapitalizations, i.e. debt for dividends.