Carlyle Unit Fails To Meet Margin Calls
Carlyle Capital Corp., Ltd., a publicly traded financial company managed by the Carlyle Group, the District-based private equity giant, failed to meet banks' margin calls on its $21.7 billion portfolio yesterday, according to a company news release.
Carlyle Capital, listed on the Euronext in Amsterdam, said it received notice from one bank that it was in default on its loans, which used to fund Triple-A rate home mortgage bonds from Fannie Mae and Freddie Mac, according to the company.
Carlyle Capital has become a minor embarrassment to the Carlyle Group, a blue-chip private equity firm that has earned outsized returns for its investors over the last two decades.
The crisis at Carlyle Capital also reflect the spreading turmoil in the capital markets, which is infecting even the highest-rated securities.
Carlyle Group spokesman Chris Ullman said today that while the outlook for Carlyle Capital is unclear, the Carlyle Group has limited exposure.
Ullman said Carlyle Group's investors' money, which are mostly from pension funds, sovereign wealth funds and wealthy individuals, is not at risk in Carlyle Capital. The private equity giant has $75 billion under management from investors around the world.
The Carlyle Group runs the publicly traded company and puts its owners' and some employees' money in the firm. None of Carlyle Group's buyout fund money is in Carlyle Capital, Ullman said.
The Carlyle Group has invested $150 million into Carlyle Capital over the past year to help bolster its capital structure, which has been hit hard by the worldwide credit crisis.
Carlyle Capital has used about $670 million in cash equity to finance the $21.7 billion portfolio of mortgage-backed securities issued by Freddie Mac and Fannie Mae.
Similar securities are now being traded on markets at below their face value, which has caused Carlyle Capital's banks to ask the company to inject more cash.
Carlyle Capital said it received one bank notice that it was in default and expected another default notice shortly.
The banks have increased the fees they charge Carlyle Capital over the past year, which has also exacerbated the situation. Some fees have risen from one percent of the loan to three percent.
Carlyle Capital's lenders include U.S. financial institutions that written off billions in losses from mortgage-backed securities: Bank of America, Bear Stearns, Citigroup, Lehman Brothers, JPMorgan, Merrill Lynch and UBS.
Carlyle Capital said some of the banks had expressed a willingness to work with the company through the current crisis.
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