Sunday, November 6, 2016

Fitch Drops Carlyle Group to BBB+ from A-

Businesswire reported Fitch Rating downgraded Carlyle Group and its affiliated entities:  Highlights include

The downgrades reflect Fitch's belief that Carlyle will not be able to generate sufficient FEBITDA momentum over the next 12 months to address the firm's elevated leverage ratio. Fitch believes the delay in FEBITDA expansion is being driven by outflows in the Claren Road funds, the sale of Emerging Sovereign Group (ESG), the run-off of Diversified Global Asset Management, and, to a lesser extent, elevated costs associated with product development for the Global Market Strategies (GMS) segment.

FAUM amounted to $123.8 billion at Sept. 30, 2016, down 3.4% year-over-year, as fund realizations, meaningful hedge fund redemptions, and market depreciation, surpassed fundraising activity

Firm leverage remained elevated at 5.39x for the TTM ended Sept. 30, 2016, which is well above Fitch's 'BBB' category quantitative benchmark for alternative IMs of 2.5x-4.0x. Fitch believes leverage is likely to increase further in 2017 as FEBITDA is pressured by the continued decline in the hedge fund business, , and higher fundraising costs as the firm gears up for the next fundraising cycle, and to a lesser extent, elevated expenses associated with product development in GMS.

Carlyle is a leading global alternative IM specializing in private equity, real estate, energy, credit funds, and fund of funds. As of Sept. 30, 2016, FAUM amounted to $123.8 billion and total AUM was $169.1 billion.
AUM is in a two year decline.