From combined dispatches
Carlyle Group’s mortgage-bond fund said creditors might force a sale of up to $16 billion of securities unless the two sides reach agreement on debt repayments.
The fund, started by David Rubenstein’s private-equity firm less than a year ago, asked lenders to put further sales on hold after they sold collateral on $5 billion of debt, Carlyle Capital Corp. said in a statement yesterday. It is meeting lenders to discuss more than $400 million of margin calls and is “evaluating all options,” said a spokesperson for the fund, which is based on the British island of Guernsey.
Stung by about $190 billion of losses and write-downs from the subprime-mortgage collapse, banks are asking for extra collateral on even the safest debt. Carlyle Capital, which went public in July, used loans from a dozen banks including Citigroup Inc. and Deutsche Bank AG to buy about $22 billion of AAA-rated mortgage debt. Even those bonds have slumped.
Carlyle’s fund “wasn’t prepared,” said Philip Keevil, a senior partner in London at Compass Advisers LLP and former head of European mergers at Salomon Smith Barney Inc. “They hadn’t started selling ahead of time, and now they’re having trouble liquidating their positions.”
The fund is managed by a unit of District-based Carlyle Group, founded in 1987, which is one of the world’s largest private-equity firms with $76 billion under management, whose influential Washington participants have included former Secretary of Defense Frank C. Carlucci and James A. Baker III, former secretary of state.
The fund said its agency debt issued by Fannie Mae and Freddie Mac has an “implied guarantee” from the government. It hasn’t received so-called deficiency notices from lenders who have sold debt so far, it said.
Carlyle increased mortgage investments last year, selling $300 million of shares in Carlyle Capital in the initial public offering. The fund delayed and then cut the size of the IPO by about 25 percent as the worst housing market in a quarter century began to take hold.
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.
Since Wednesday, lenders have told Carlyle Capital that they consider it “in default under financing agreements,” the release said.
Managers who trade fixed-income securities typically borrow money through repurchase agreements, or repos. In a repo, the security itself is used as collateral, just as a homeowner puts up the house as collateral for a mortgage.
“If people are forced to sell down, it will push market prices further down,” said Philip Gisdakis, senior credit strategist at UniCredit SpA in Munich. “We’re in a vicious cycle.”
The fund plunged 58 percent to $5 in Amsterdam on Thursday after disclosing it could not meet lenders’ demands for more collateral. The stock, which started trading at $19, has been suspended from trading since Friday.
“We’re evaluating all options,” Emma Thorpe, a Carlyle spokeswoman in London, said by telephone. “Nothing has been ruled in, and nothing has been ruled out.”
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