Carlyle’s Rubenstein not alarmed by higher leverage

  • Lower interest rates take sting out of leverage
  • Carlyle would ”be happier” doing more deals
  • Firm may seek out niche managers to buy

Using leverage of 6x EBITDA on a deal “was much more expensive” during the peak years of the last decade than it is today, Rubenstein said in a presentation at the UBS Best of Americas 2014 Conference in London.

Rubenstein said covenant lite loans are “very common in the industry now” but he said he does not see the trend as a particularly troubling development. He estimated that about 60 percent of all leveraged loans nowadays are covenant lite and nearly all of Carlyle’s loans fall into that category, he said.

“I don’t obsess over it (because) we…pay our interest,” Rubenstein said. The U.S. government and other regulators are looking at leveraged loan rates and attempting to limit banks’ participation in highly leveraged lending.

Asked about the current M&A environment, Rubenstein said stock prices are high, so not as many deals are being done as might occur if price levels were lower. Big public corporations are flush with cash so “companies don’t feel a need to sell things,” he said.

About half of the private equity deals being done right now are secondary buyouts between GPs because large strategics aren’t selling as much, but “we have not found it to be as difficult as some people may think.”

Carlyle, for example, is in the midst of buying Acosta Sales & Marketing from another firm, Thomas H. Lee Partners, in a $5 billion deal.

Nevertheless, “we’ve invested a little bit less than we‘d like to this year,” Rubenstein said. “We’d be happier investing a bit more.”

While Carlyle has purchased other private equity players such as the Dutch fund of funds manager AlpInvest Partners, Rubenstein said it is unlikely any of the big, publicly traded buyout firms will merge. It is possible that Carlyle could buy smaller specialist funds. Overall, the diversification trend among the largest private equity funds will continue, he said.

On fundraising, Rubenstein said Caryle continues to expect to raise about $20 billion this year, in line with 2013.