Carlyle Capital in jeopardy after defaulting on $16.6b debt
LONDON - Carlyle Group said creditors plan to seize the assets of its mortgage-bond fund after it failed to meet more than $400 million of margin calls on mortgage-backed collateral that plunged in value.
Carlyle Capital Corp., which began to buckle a week ago from the strain of shrinking home-loan assets, said in a statement it defaulted on about $16.6 billion of debt as of Wednesday.
The fund fell 87 percent in Amsterdam trading. Carlyle Group, cofounded by David Rubenstein, tapped public markets for $300 million in July to fuel the fund just as rising foreclosures caused credit markets to seize up. In the past month, managers led by Peloton Partners LLP have closed at least a dozen funds, sold assets, or sought fresh capital as banks tightened lending standards.
"If Carlyle's lenders want their money right away, they'll liquidate the fund," said Hank Calenti, a London-based analyst at RBC Capital Markets. "That will put pressure on already stressed credit markets."
Lenders will "promptly" take over all of its remaining assets after it failed to reach an agreement with lenders, Carlyle Capital said. Any remaining debt is expected to go into default "soon," the fund added.
The fund's losses were caused by "excessive leverage," said Arthur Levitt, a senior Carlyle adviser, yesterday. "This did not affect the overall Carlyle enterprise," said Levitt, former chairman of the Securities and Exchange Commission and a board member of Bloomberg LP, the parent of Bloomberg News.
"This was a single fund, and I suspect as this plays out, you are going to see a lot of other private-equity companies, a lot of banks, going down the same road," he said.
Carlyle Capital's plea for refinancing on residential mortgage-backed securities failed late Wednesday after a pricing service used by some lenders reported a decrease in the value of the assets, the firm said.
Carlyle Group and its funds are not liable for repurchase agreements that Carlyle Capital used to buy residential mortgage-backed securities, Hong Kong-based spokeswoman Dorothy Lee said in an e-mail yesterday. "The Carlyle Group's only material financial exposure to CCC is through a $150 million unsecured subordinated revolving credit agreement with CCC," she said.
"At this point we are exploring all options" for Carlyle Capital, Emma Thorpe, a spokeswoman for Carlyle Group in London, said. She declined to specify the options being considered.
Carlyle Group said in a statement it had worked "exhaustively" with the fund to negotiate new financing.
Carlyle's fund has said its so-called agency debt has an "implied guarantee" from the US government.
The industry is reeling from its worst crisis because bankers - staggered by almost $190 billion of asset writedowns and credit losses - are raising borrowing rates and demanding extra collateral for loans.
"This is not only a problem for Carlyle," Jochen Felsenheimer, the Munich-based head of credit strategy at UniCredit SpA, wrote in a note to clients yesterday. "We expect a further flood of downgrades especially of higher-rated securities, putting enormous pressure on the system."
Carlyle Capital originally delayed and then cut the size of its IPO by about 25 percent as the subprime contagion began. In all, the fund used about $670 million of equity to amass a $22 billion portfolio of mortgage debt. For every dollar of equity, the pool borrowed $32. 