Thursday, February 23, 2017

Carlyle Sees Distress Ahead

Breakingviews reported:

The Carlyle Group said on Feb. 23 it raised $2.5 billion for its latest distressed and special-situations fund, Carlyle Strategic Partners IV. The fund is more than triple the size of the alternative asset manager's previous such offering, a $700 million fund that closed in 2011. 
Carlyle's super sized distressed asset fund is timely according to one private equity underwriter (PEU):

"The current global economic and market environment is laying the groundwork for solid distressed control and turnaround investment opportunities," Ian Jackson, managing director and co-head of Carlyle Strategic Partners, said in a statement. 
Carlyle knows because it has at least one distressed affiliate, Philadelphia Energy Solutions (PES).   Moody's downgraded PES debt in November.  Sponsor "debt for dividend" moves can be threatening to a company's financial health.

Despite the downturn, Carlyle Group and its partner, Sunoco parent Energy Transfer Partners, have done well. The partnership banked hundreds of millions from the refinery in dividend-style payouts that were funded in part from a loan that continues to weigh on the company, Reuters reported last month.

In total, between 2013 and 2015 payouts and tax advances to the partnership reached $480.9 million, all but guaranteeing Carlyle's venture would be profitable.
Carlyle's PES has a $550 million term loan due April 2018.  That's over a year away.  I wonder if Carlyle Strategic Partners IV will buy discounted PES debt.  Can Carlyle backdoor Carlyle (like it did to Brintons and Mrs. Fields)?