Carlyle Makes Second Loan to Troubled Affiliate

Carlyle Group, the District-based private equity giant, will lend another $100 million to shore up a struggling European affiliate that has been battered by recent credit market turmoil.

The affiliate, Carlyle Capital Corp., said in a statement today that the loan would be repaid from the sale of about $900 million in assets, including bank loans and other debt securities.

"This additional liquidity will help us better weather the market conditions we are facing," John Stomber, chief executive of Carlyle Capital, said in the statement.

Carlyle Capital uses borrowed money to invest in AAA-rated mortgage-backed securities, and its investment portfolio totaled $22.7 billion as of June 30. However, the value of those holdings has been dragged down by recent upheaval in the market for mortgage backed securities.

Last week, Carlyle Group made an initial loan of $100 million to its affiliate. Today, Carlyle Capital said it drawn down all of that loan. In a separate letter to investors, Stomber wrote that the company's liquidity cushion was "not sufficient to meet recent margin calls."

Carlyle Capital, based in Guernsey -- an island in the English Channel off the Normandy coast -- raised $322 million in an initial stock offering less than two months ago, listing its shares on the Euronext Amsterdam exchange. Late last month, it reported a $33.4 million profit for the first six months of the year.

However, the company said that the latest round of market volatility would result in a loss for the third quarter and force the likely cancellation of its dividend.

Stomber said the company had designed its business model to withstand credit market problems comparable to those prompted by the 1998 meltdown of the Long Term Capital Management hedge fund, but that the current market disruption was significantly worse.

"Unlike 1998, the market for AAA rated US agency floating rate capped mortgage backed securities issued by Fannie Mae or Freddie Mac was materially affected by recent events and the market for repurchase agreements secured by high quality agency issued mortgaged backed securities experienced instability," he wrote.

Carlyle Capital has scheduled a conference call with investors for Wednesday, at 9 a.m. EDT.

By Mike Shepard  |  August 28, 2007; 12:44 PM ET  | Category:  Carlyle , Private Equity
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