By Gillian Tan
Carlyle Group LP co-founder and co-Chief Executive David
Rubenstein says a recent effort by regulators to curb excessive
lending to fund corporate takeovers is "not really a problem," for
private equity while acknowledging that it is causing banks to sit
out some deals.
Speaking at the Thomson Reuters Partner Connect East conference
in New York on Wednesday, Mr. Rubenstein said banks are "looking
at" the guidance issued by the Office of the Comptroller of the
Currency, Federal Reserve and Federal Deposit Insurance Corp.
designed to deter banks from funding deals that regulators feel are
too laden with debt.
"The banks are very careful about what they do, and I think they
might have some deals that they might not do that they would have
otherwise done," Mr. Rubenstein said.
J.P. Morgan Chase & Co. and Bank of America Corp. recently
sat out Carlyle's $4.15 billion acquisition of Johnson &
Johnson's blood-testing unit, partly because of the regulatory
guidance, The Wall Street Journal reported in January.
Deutsche Bank AG, meanwhile, opted not to finance Carlyle's $3.2
billion acquisition of Illinois Tool Works Inc.'s industrial
packaging segment, a deal announced in February, according to
people familiar with the matter.
Some banks, however, have continued to finance such deals, and
nonbank lenders also have stepped in to fill the funding gap.
"There are a lot of banks out there and non-banks also available
to provide lending, so it's not a big problem for us," Mr.
Rubenstein said.
He also dismissed arguments that yield-hungry investors have
overheated the leveraged-lending market, which funds many of the
corporate takeover deals led by private-equity firms like
Carlyle.
"I don't think there's a real bubble in terms of leveraged
lending," Mr. Rubenstein said. "Leveraged lending is increasing,
but it is still not anywhere where it was in 2004 or 2005 in terms
of overleverage."
Data indicate that the leveraged-lending market may be cooling
off. Global leveraged finance issuance is on track to reach $410.2
billion in the quarter ending March 31, a 34% decrease from the
$617.9 billion raised by the end of the same period last year and
the lowest first-quarter volume since 2010, according to data
provider Dealogic.
However, the availability of debt to fund private-equity-led
buyouts remains high, with 30% of such deals in 2014 to date
financed at leverage levels of six or more times a borrower's
earnings before interest, taxes, depreciation and amortization.
That is the highest level since 2007, when the percentage was 52%,
according to S&P Capital IQ LCD.
Write to Gillian Tan at gillian.tan@wsj.com
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