March 13, 2012
Partner Allan J. Weiner was quoted in the Bloomberg Businessweek article, “Carlyle Owners Took $398.5 Million Payout With Debt Before IPO.” The article discusses the transaction that Carlyle Group LP, a private equity firm, made nine months before it filed to go public, saddling itself with debt in order to pay owners a $398.5 million tax-deferred dividend. The firm borrowed $500 million, saying it would use part of the money to expand investment products, when really it paid out almost 80 percent to existing owners. The deals leave Carlyle’s future shareholders with the cost of servicing the debt.
Mr. Weiner commented, “They are essentially creating a distribution without paying taxes. Presumably, because it is debt, they are burdening the existing entity.”
Mr. Weiner also pointed out that by financing the dividends with debt, the firm’s founders can receive the full amount without an immediate tax bill or having to sell shares in the IPO. According to the Internal Revenue Code regulations, the owners can defer paying taxes until the debt is retired.