View Full Version : Carlyle Group Nears Collapse As Rescue Talks Fail

03-13-2008, 08:31 AM
Carlyle Capital Nears Collapse as Rescue Talks Fail


By Joseph Galante and Edward Evans

March 13 (Bloomberg) -- Carlyle Group's mortgage-bond fund moved a step closer to collapse after failing to reach an agreement with lenders who demanded more than $400 million to meet 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 and any remaining debt is expected "soon" to go into default, Carlyle Capital said.

Carlyle Capital plunged as much as 70 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, at least a dozen funds have closed, 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.

Calls and e-mails to Carlyle Capital spokesman Rowland Hunt and spokeswoman Ellen Gonda weren't immediately returned.

Carlyle's fund has said its so-called agency debt has an "implied guarantee" from the U.S. 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. Treasuries extended gains as investors took the collapse of the talks as a sign that credit market losses are deepening.

'Flood of Downgrades'
"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. It then added the money raised in July to a private $590 million pool opened in 2006. 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 $1.97 to 83 cents as of 10:35 a.m. today.

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."

03-13-2008, 04:51 PM
GW will save it. Can't let his daddy take a loss.