Carlyle has agreed to pledge 70 percent of the firm's quarterly management fees, along with the carried interest of its partners, as collateral, according to the most recent version of the loan agreement, filed with the SEC last month.
Carlyle entered into additional collateral agreements in December 2008, involving U.S. and U.K. bank accounts under the name of Carlyle Investment Management LLC. The firm reported a net loss of $514 million that year, according to the IPO filing.
After Carlyle filed to go public in September of last year, its lenders -- Citigroup Inc., Credit Suisse Group AG and JPMorgan Chase & Co. -- agreed to increase the revolving credit line to $750 million from a prior limit of $150 million. According to a copy of the borrowing agreement, revised again in December, the banks will no longer require the management and carried interest fees that Carlyle and its partners pledged as collateral once the IPO is completed and Mubadala is repaid.
All three banks were awarded top roles managing Carlyle's share sale. Officials for the banks declined to comment.
The Mubadala financing in 2010 helped Carlyle distribute $787.8 million in cash to its top executives that year, up from $215.6 million in 2009 and $253.9 million in 2008, according to regulatory filings.
Carlyle didn't give a reason for the dividend payout. Its founders were among senior professionals who had committed to contributing $1.2 billion to the firm's buyout and other funds as of Sept. 30, according to the IPO documents. Such commitments can sometimes prove burdensome for private equity executives, said David Miller, a tax attorney at Cadwalader, Wickersham & Taft LLP in New York.
"It was not infrequent during the recession that private equity managers had to draw on credit lines because they had commitments," Miller said.
In addition, when Carlyle's buyout funds sell portfolio companies, either through direct sales to another suitor or through IPOs, the firm's partners must recognize income for tax purposes, even though they may not get any of the actual cash. Instead they must wait until outside investors in Carlyle funds have gotten all of their capital back plus a preferred return of 8 to 9 percent, according to the firm's IPO filing.
"Managing the cash in a private equity arrangement is a little more of a challenge than in a typical hedge fund that has liquid assets," said Jim Browne, a partner at Strasburger & Price LLP, a Dallas-based law firm that specializes in general tax planning.
The stock grant that Mubadala received when it bought subordinated notes from Carlyle in 2010 raised its holdings to 9.5 percent. Carlyle's valuation of the 2 percent equity stake assumed that the buyout company was worth $10 billion, according to the filing. The purchase price Mubadala paid for its initial investment in 2007 implied a valuation of about $20 billion for Carlyle at the time.