Carlyle Group is winding down a $4 billion energy credit business after two co-heads recently left the firm.
The departures of David Albert and Rahul Culas triggered a so-called key-man event on the Carlyle Energy Mezzanine Opportunities Fund II, according to people with knowledge of the matter. The remaining team at the energy credit business will discontinue investing from the $2.8 billion pool and manage out the rest of the portfolio.
"The team remains focused on maximizing the value of our investments in the CEMOF I and II portfolios," a representative for Carlyle said in a July 28 statement. "We will continue to pursue energy credit across Carlyle's Global Credit platform through multiple strategies executed by our direct lending, opportunistic credit, and distressed teams."
Messrs. Albert and Culas declined to comment.
Carlyle's energy mezzanine group faced difficulties with its first fund amid oil price declines in recent years. Some peers, including Blackstone Group, faced similar headwinds. Blackstone's credit business saw its $1 billion special situations fund fall 12% in 2018 before accounting for expenses, Bloomberg reported in January. Carlyle's first energy mezzanine fund was held below cost at the end of March and posted a negative internal rate of return, according to the firm's first-quarter earnings report.
The Carlyle team mostly has invested in the debt of energy and power companies in the U.S. and Canada. Mezzanine debt gets payout priority before equity, but after senior debt, in a bankruptcy. The Washington-based firm's website lists a dozen senior people on the energy credit team. Its first fund, started in 2010, raised $1.4 billion.
Its second fund is doing better, producing a 1.1 times multiple as of March 31, according to an earnings report. The fund was 39% invested as of that date.
Messrs. Albert and Culas worked together in the project and structured finance group at Morgan Stanley before joining Carlyle in 2010.
Carlyle's global credit business manages about $46 billion, including direct lending, distressed and special situations and aviation finance strategies.
