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Fitch Expects to Rate Carlyle Group Preferred Issuance 'BBB-'
September 6, 2017 / 12:38 PM / 2 months ago

Fitch Expects to Rate Carlyle Group Preferred Issuance 'BBB-'

(The following statement was released by the rating agency) NEW YORK, September 06 (Fitch) Fitch Ratings expects to rate The Carlyle Group L.P.'s (Carlyle) perpetual preferred units 'BBB-(EXP)'. The preferred units are expected to be subordinated to existing unsecured debt but senior to common units. Distributions, when and if declared by the board of directors, will be payable quarterly at a fixed annual rate. Distributions on the preferred units are non-cumulative. Unless distributions have been declared on the preferred units, Carlyle may not declare or pay distributions on its common units. The preferred units are perpetual in nature, but may be redeemed, at Carlyle's option, five-years after issuance. Proceeds from the issuance are expected to be used for general corporate purposes, including funding co-investments. KEY RATING DRIVERS PREFERRED UNITS The preferred units are expected to be rated two notches lower than Carlyle's long-term Issuer Default Rating (IDR) in accordance with Fitch's 'Non-Financial Corporates Hybrids Treatment and Notching Criteria' dated April 2017. The preferred units' rating includes two notches for loss severity, reflecting the preferred units' subordination and heightened risk of non-performance relative to other obligations, namely existing unsecured debt. Fitch has afforded the issuance 100% equity credit given the non-cumulative nature of the dividends, the fact that the preferred units are perpetual, and the existence of a coupon step-up of up to 500bps in the event of a change of control. The preferred units will not benefit from joint and several guarantees from the Carlyle operating entities, given the registration requirements. However, Carlyle will contribute the proceeds from the issuance to the Carlyle Holdings partnerships (Carlyle Holdings I L.P., Carlyle Holdings II L.P., and Carlyle Holdings III L.P.), which will each issue to Carlyle a new series of preferred units with economic terms designed to mirror those of the preferred unit issuance. This will include an inability to declare distributions on common units unless distributions have been declared and paid on the preferred units. These terms help to provide a credit benefit to offset the lack of a guarantee by structurally prioritizing the preferred units above all common units. RATING SENSITIVITIES PREFERRED UNITS The preferred unit rating is sensitive to changes in Carlyle's Long-Term IDR, and would move in tandem with any changes to it. Carlyle's IDR could be negatively affected by declines in investment performance, a key-man event and/or legislative risk which have a negative impact on the company's ability to raise FAUM and generate fees, material declines in FEBITDA margins, failure to maintain leverage within Fitch's 'BBB' rating category benchmark range longer term, and/or impairment of the liquidity profile. Carlyle's IDR could be positively influenced by stronger cash earnings diversity, a sustained reduction in leverage to under 4.0x, and improvements in balance sheet liquidity which provide the firm with more operating flexibility as it relates to growth and expansion opportunities. Fitch has assigned the following: The Carlyle Group L.P. --Preferred unit rating of 'BBB-(EXP)'. Existing ratings on affiliated Carlyle entities are as follows: The Carlyle Group L.P. Carlyle Holdings I, II, and III L.P. TC Group LLC --Long-Term IDR 'BBB+'. Carlyle Investment Management LLC TC Group Investment Holdings LP TC Group Cayman Investment Holdings LP TC Group Cayman LP Carlyle Holdings Finance L.L.C Carlyle Holdings II Finance L.L.C --Long-Term IDR 'BBB+'; --Unsecured debt 'BBB+'. The Rating Outlook is Stable. Contact: Primary Analyst Michael Taiano Director +1-646-582-4956 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Meghan Neenan, CFA Managing Director +1-212-908-9121 Committee Chairperson Sean Pattap Senior Director +1-212-908-0642 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here Non-Financial Corporates Hybrids Treatment and Notching Criteria (pub. 27 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. 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The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. 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