Carlyle's Owners Get a Pre-IPO Payday

Carlyle Group’s owners aren’t waiting for an initial public offering to take some money off the table. In transactions nine months before it filed for an IPO, the private equity firm saddled itself with debt to pay founders William Conway Jr., Daniel D’Aniello, David Rubenstein, and other owners a $398.5 million tax-deferred dividend. First it borrowed $500 million from Abu Dhabi’s Mubadala Development in December 2010, saying it would use part of the proceeds to expand investment products. Then it paid out almost 80 percent of the money to existing owners, according to regulatory filings. Separately, the Washington-based firm also negotiated bank credit giving it the option to distribute an additional $400 million prior to the IPO, according to lending agreements filed with the Securities and Exchange Commission last month.

“Why would you do that?” asks Matthew Pieniazek, president of Darling Consulting Group, a Newburyport (Mass.) adviser to banks. He suggests Carlyle’s owners may have wanted some insurance against the vagaries of a public offering. “IPOs are not guaranteed,” he says. “They were willing to give up some of the upside for the certainty of” a distribution. Chris Ullman, a spokesman for Carlyle, declined to comment. In October 2011, Carlyle used bank loans to repay half the money it borrowed from Mubadala. On March 1, it borrowed $263.1 million to retire the remaining $250 million in Mubadala debt, according to a March 15 regulatory filing.