Carlyle Capital on Verge of Collapse After Talks Fail
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Carlyle Capital on Verge of Collapse After Talks Fail
From MarketWatch, online at:
By Simon Kennedy
6:00 AM ET Mar 13, 2008
LONDON (MarketWatch) -- Carlyle Capital, the bond fund affiliated with private equity firm The Carlyle Group, is on the verge of collapse after failing to agree a new financing deal with lenders.
The fund said late Wednesday that it expects lenders will soon take possession of
"substantially all" its remaining assets after it was unable to meet surging margin calls on its portfolio of residential-mortgage-backed securities.
Carlyle's woes contributed to a slump in European and Asian stock markets Thursday as investors feared credit problems will continue to spread. The news also helped drive the dollar below 100 yen for the first time since 1995. See Europe Markets.
So far, Carlyle said it's defaulted on $16.6 billion of its debt and its remaining borrowing is expected to go into default soon.
Carlyle Capital's highly leveraged model has made it particularly susceptible to declines in the value of its residential-mortgage-backed securities. Margin calls, or demands for cash to cover losses, have soared since the end of February as credit markets have worsened.
Talks collapse
Negotiations with lenders effectively ended late Wednesday when the pricing service used by certain lenders reported another drop in the value of mortgage-backed securities. That's expected to trigger another $97.5 million of margin calls Thursday, on top of the roughly $400 million of demands it received in the previous week.
"Overall, it has become apparent to the company that 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," the fund said in a statement.
Shares in Carlyle Capital slumped 70% in early trading Thursday to 0.83 euros. The stock has fallen 93% from 12 euros since the fund first announced it had missed some margin payments earlier in March.
The fund said Carlyle Group assisted in its negotiations and had been willing to provide additional capital if a successful refinancing could have been achieved.
Carlyle Group is the investment adviser to the fund and has provided it with a $150 million line of credit. Individuals at Carlyle also own around 15% of the fund's securities.
At the end of December the fund had total equity of around $670 million and had used short-term loans, or repurchase agreements, to fund an investment portfolio of close to $22 billion.
Its portfolio is comprised entirely of securities issued by Fannie Mae and Freddie Mac , which the fund has said effectively carry a government guarantee. The market value of these securities has fallen in recent weeks, however, as the credit crisis has slashed demand for all types of mortgage securities.
The fund's counterparties include Bank of America , Bear Stearns , BNP Paribas , Citigroup , Credit Suisse , Deutsche Bank , J.P. Morgan Chase , UBS and others.
According to a Wall Street Journal report Wednesday, Deutsche Bank and J.P. Morgan were among the firms that rebuffed the fund's request for new financing terms, while some dealers, including Citigroup, had been willing to negotiate a new deal.
By Simon Kennedy
6:00 AM ET Mar 13, 2008
LONDON (MarketWatch) -- Carlyle Capital, the bond fund affiliated with private equity firm The Carlyle Group, is on the verge of collapse after failing to agree a new financing deal with lenders.
The fund said late Wednesday that it expects lenders will soon take possession of
"substantially all" its remaining assets after it was unable to meet surging margin calls on its portfolio of residential-mortgage-backed securities.
Carlyle's woes contributed to a slump in European and Asian stock markets Thursday as investors feared credit problems will continue to spread. The news also helped drive the dollar below 100 yen for the first time since 1995. See Europe Markets.
So far, Carlyle said it's defaulted on $16.6 billion of its debt and its remaining borrowing is expected to go into default soon.
Carlyle Capital's highly leveraged model has made it particularly susceptible to declines in the value of its residential-mortgage-backed securities. Margin calls, or demands for cash to cover losses, have soared since the end of February as credit markets have worsened.
Talks collapse
Negotiations with lenders effectively ended late Wednesday when the pricing service used by certain lenders reported another drop in the value of mortgage-backed securities. That's expected to trigger another $97.5 million of margin calls Thursday, on top of the roughly $400 million of demands it received in the previous week.
"Overall, it has become apparent to the company that 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," the fund said in a statement.
Shares in Carlyle Capital slumped 70% in early trading Thursday to 0.83 euros. The stock has fallen 93% from 12 euros since the fund first announced it had missed some margin payments earlier in March.
The fund said Carlyle Group assisted in its negotiations and had been willing to provide additional capital if a successful refinancing could have been achieved.
Carlyle Group is the investment adviser to the fund and has provided it with a $150 million line of credit. Individuals at Carlyle also own around 15% of the fund's securities.
At the end of December the fund had total equity of around $670 million and had used short-term loans, or repurchase agreements, to fund an investment portfolio of close to $22 billion.
Its portfolio is comprised entirely of securities issued by Fannie Mae and Freddie Mac , which the fund has said effectively carry a government guarantee. The market value of these securities has fallen in recent weeks, however, as the credit crisis has slashed demand for all types of mortgage securities.
The fund's counterparties include Bank of America , Bear Stearns , BNP Paribas , Citigroup , Credit Suisse , Deutsche Bank , J.P. Morgan Chase , UBS and others.
According to a Wall Street Journal report Wednesday, Deutsche Bank and J.P. Morgan were among the firms that rebuffed the fund's request for new financing terms, while some dealers, including Citigroup, had been willing to negotiate a new deal.
BN,
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MrJackistive
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