Tuesday, November 17, 2015

Carlyle Faces Credit Questions

 Bloomberg reported:

After two weeks of trying to peddle debt backing the largest private-equity buyout of 2015 Wall Street’s biggest banks have given up -- at least for now.

Lenders led by Bank of America Corp. and Morgan Stanley postponed marketing $5.5 billion of loans and bonds they underwrote to finance Carlyle Group LP’s takeover of Symantec Corp.’s data-storage business as investors shy away from riskier corporate debt.
The fall 2008 financial crisis happened when the big money boys no longer trusted one another to make good on their debt, much less their credit bets.

Carlyle affiliate Accudyne had its debt downgraded by Moody's:

Moody's expects further revenue declines and earnings erosion, along with sustained high financial risk. Cash flow is unlikely to meaningfully reduce debt. The business also faces currency transaction risk as a substantial portion of sales are denominated in currencies other than the US dollar.
The Carlyle Group also sponsors Project Service, which came under fire for not paying subcontractors renovating Connecticut rest areas.

As the nearly $150-million job is at its end, subcontractors who are still owed a collective $5 million for work they have completed use less-than-glowing words to describe the two corporations that ran the six-year project: Centerplan Construction Co. of Middletown and Project Service LLC of Milford.
Lastly, Carlyle GMS Finance reported in its latest 10-Q:

On September 25, 2015, the Company issued a capital call and delivered capital drawdown notices totaling $26 million.
The credit noose is tightening.

Update 11-19-15:  Reuters reported on investors reduced appetite for risky debt.  "On top of that, the recent sharp drop in prices of riskier debt has left some nursing losses." Journal Media reported "Revenue for S&P 500 companies has shrunk in all three quarters so far this year."  ZeroHedge reported "Goldman admits this (record low negative swap spreads) signals funding and balance sheet strains are worsening since August."

Update 11-21-15:  Institutional Investor ran a story on the pause in PEU out-performance since the financial crisis.  Their story said PEU deals are up to 10x EBDITA but the big players cans still source financing.  Have they read about Carlyle's struggling Veritas deal?

Update 12-26-15:  Deal closing has been pushed back from January 1 to January 29.