Carlyle Sees Room to Run in Overlooked Part of Credit Market

(Bloomberg) -- Carlyle Group LP’s newest credit fund is looking to capitalize on an opening in the market by lending to midsize companies that are privately held or family-owned.

“Our focus is on borrowers and businesses that for one reason or another cannot access the traditional credit markets and they do not want private equity,” Alex Popov, head of Carlyle Credit Opportunities, said in an interview.

As competition rises in pockets of private credit, compressing yields, Carlyle is looking for overlooked opportunities ahead of a long-anticipated downturn. The company, which has $47 billion of credit assets under management, is hunting for borrowers less exposed to recessionary forces in sectors where others don’t lend, Popov said.

“The level of competition reduces very quickly,” he said. “The type of risk we see in this fund is really focused on complexity, lack of institutionalization and niche industries -- and those are not cyclical problems.”

Corporate Transition

The fund is looking to lend to more developed companies with at least $500 million of enterprise value. About 40% of the businesses the fund invests in have at least $1.5 billion of value, Popov said. These are often companies going through a transition such as those looking to expand, boost capital expenditures or buying out a legacy minority shareholder, he said.

Carlyle said in July its Credit Opportunities Fund had raked in $2.4 billion of equity commitments. At that point the fund had already invested in a founder-owned home builder and a publicly traded media company. This month the fund was one of three lenders to provide financing for AVALT’s purchase of home service company Ned Stevens.

That transaction is an example of how the fund wants to leverage Carlyle’s existing network of investment professionals. When the private equity group didn’t end up acquiring Ned Stevens it arranged an introduction, which led to the fund playing a part in the debt financing, Popov said.

Roughly 85% of the deals the fund has done so far have come through Carlyle’s proprietary channels.

“That network is very powerful in terms of sourcing opportunities,” Popov said.

To contact the reporter on this story: Kelsey Butler in New York at kbutler55@bloomberg.net

To contact the editors responsible for this story: Natalie Harrison at nharrison73@bloomberg.net, Adam Cataldo, Sally Bakewell

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