The MasterBlog: 32:1!!!!! Carlyle Capital Nears Collapse as Rescue Talks Fail (Update4)
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Thursday, March 13, 2008

32:1!!!!! Carlyle Capital Nears Collapse as Rescue Talks Fail (Update4)

talk about getting suckered.  Carlyle has no huge exposure, but the shareholders....  IPO @ 20, it's trading @ 0.43 now...  That's what 32:1 leverage will do to you...

Carlyle Capital Nears Collapse as Rescue Talks Fail (Update4)

By Joseph Galante and Edward Evans

March 13 (Bloomberg) -- Carlyle Group's mortgage-bond fund moved a step closer to collapse, saying creditors plan to seize the fund's assets after it failed to meet more than $400 million of margin calls.

Concern about the fate of Carlyle Capital Corp., which began to buckle a week ago from the strain of tumbling home-loan assets, helped push the dollar to a 12-year low against the yen today. The fund said in a statement that it defaulted on about $16.6 billion of debt as of yesterday. 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 plunged as much as 85 percent in Amsterdam trading. Carlyle Group, co-founded 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.''

Carlyle Capital's plea for refinancing on residential mortgage-backed securities failed late yesterday after a pricing service used by some lenders reported a decrease in the value of the assets, the firm said.

`Refinancing Not Possible'

``The basis on which lenders are willing to provide financing against the company's collateral has changed so substantially that a successful refinancing is not possible,'' Carlyle said in the statement. It expects additional margin calls today of $97.5 million.

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 today. ``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 in a telephone interview. She declined to specify the options being considered.

Carlyle's fund has said its so-called agency debt has an ``implied guarantee'' from the U.S. government.

Industry Crisis

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. Treasuries extended gains as investors took the collapse of the talks as a sign that credit market losses are deepening.

``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 today. ``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 of equity to amass a $22 billion portfolio of mortgage debt. For every dollar of equity, the pool borrowed $32.

``It was a poorly conceived fund launched at the worst time,'' said Toby Nangle, a member of the strategic policy group at Baring Asset Management in London, which manages $55 billion.

The shares, first sold to investors for $19 each, fell $2.37 to 43 cents as of 1:55 p.m. today.

Closely Watched

``At this moment there's no cause for us to suspend trading'' in Carlyle Capital, Paul van Dijk, a spokesman for the Dutch securities regulator AFM in Amsterdam, said in an interview today. ``We're closely monitoring developments.''

Carlyle's counterparties are a dozen Wall Street firms including Citigroup Inc. and Deutsche Bank AG, according to the fund's annual report. The banks use repurchase agreements to lend money and require securities be put up as collateral. As the perceived creditworthiness of asset-backed bonds declined, the amount of money that can be borrowed using them as collateral fell.

Drake Management LLC, the New York based-firm started by former BlackRock Inc. money managers, said yesterday it may shut its largest hedge fund, while GO Capital Asset Management BV blocked clients from withdrawing cash from one of its funds. Other funds hit include Peloton Partners LLP's $1.8 billion ABS Fund, Tequesta Capital Advisor's mortgage fund and Focus Capital Investors LLC, which invested in midsize Swiss companies.

``Carlyle won't be the end of it,'' said Greg Bundy, executive chairman of Sydney-based merger advisory firm InterFinancial Ltd. and a former head of Merrill Lynch & Co.'s Australian unit. ``There's more to come. The problem is no one can give you an educated guess about how much.''

To contact the reporter on this story: Joseph Galante in San Francisco at

Last Updated: March 13, 2008 09:00 EDT

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