Carlyle unit fails to meet some margin calls

By Gilbert Kreijger and Mathieu Robbins

AMSTERDAM/LONDON (Reuters) - A Dutch-listed affiliate of private equity firm Carlyle Group has not been able to meet some margin calls and has received a notice of default, it said on Thursday.

Carlyle Capital Corporation (CCC) said it received margin calls totaling more than $37 million from seven financing parties on Wednesday and was unable to meet the demands for extra collateral to cover its market positions for four of them.

It said it received one default notice and expected at least one more.

Listed on the Amsterdam exchange last July, CCC invests in products including investment grade mortgage-backed securities.

CCC as of last month had a $21.7 billion investment portfolio of AAA-rated floating-rate capped U.S. mortgage-backed securities issued by Fannie Mae and Freddie Mac.

Mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac saw spreads widen against U.S. government debt for a fourth day on Wednesday.

Some yields are now at their cheapest levels in at least two decades.

MBS are seen as posing little credit risk, but as banks and other large investors shed riskier debt, they are asking dealers with already bloated inventories to buy their holdings, creating a glut in the market.

"You may see a further reaction in the market to this statement," said Jeroen Van Den Broek, head of credit strategy at ING.

"The whole illiquidity of the market and pricing problems in the high-rated mortgage backed securities segment is a problem and not just for this one case but it is fairly widespread."

Peloton Partners LLP, a London-based hedge fund manager that formerly held nearly $3 billion in assets, is liquidating its two funds and shutting down, the firm told investors on Wednesday, according to people familiar with the situation.

Last week, Peloton told investors it was liquidating its $2 billion ABS Fund after some 14 lender banks pulled back on credit. It had held out hopes it could salvage its second fund, the $1.6 billion Multi-Strategy Fund, even though some 40 percent of its assets were invested in the other.

"The last few days have created a market environment where the repo counterparties' margin prices for our AAA-rated U.S. government agency floating-rate capped securities issued by Fannie Mae and Freddie Mac are not representative of the underlying recoverable value of these securities," CCC said.

The difference between the counterparties' margin prices and underlying value of the securities created instability and variability in CCC's repo financing arrangements, it said.

CCC said it was able to meet margin calls and collateral requirements totaling more than $60 million between February 28 and March 5.