Carlyle Capital in default, on brink of collapse
AMSTERDAM (Reuters) - An affiliate of U.S.-based buyout firm Carlyle Group has defaulted on about $16.6 billion of debt and expects its lenders to seize remaining assets as the global credit crunch tightens around leveraged investors.
Carlyle Capital Corp CARC.AS, a fund listed in Amsterdam, said in New York on Wednesday that negotiations with lenders deteriorated late in the day after a drop in the value of its mortgage investments would result in margin calls of $97.5 million on top of the $400 million it was already facing.
A "successful refinancing is not possible," Carlyle Capital said, after trying for the past week to work out a deal with lenders to stave off bankruptcy.
Bund futures in Europe rose after the news back to levels they traded at before the U.S. Federal Reserve and other central banks coordinated on Tuesday to inject liquidity into credit markets. The dollar also fell.
The credit crunch, triggered last year when subprime mortgages made to risky U.S. borrowers went sour, has put increasing pressure on lenders to shore up capital and made it difficult to value collateralized debt, mortgage portfolios and other fixed-income securities -- the investments that Carlyle Capital was set up to invest in.
"The credit angst is back," said Tim Condon, head of Asia research with investment bank ING.
The default by the fund prompted spreads to widen on the iTRAXX Asia ex-Japan investment grade index, and European credit spreads also widened, returning close to record wide levels touched earlier in the week. The news also sent the dollar lower, where it touched 12 year-lows against the yen JPY=.
Carlyle Capital, based in Britain's offshore dependency of Guernsey, said in the only assets it has left are AAA-rated residential mortgage-backed securities, and that it expected lenders to foreclose on the this collateral.
"It has become apparent to the company that 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 Capital said.
Its shares tumbled 73 percent to $0.76 at 1002 GMT, a fraction of their $20 debut price last July.
Dutch market regulator AFM said it was monitoring developments closely.
"Sentiment is broadly negative and news of missed margin calls at large highly leveraged funds only elevates fear of a vicious cycle of more forced selling at deep loss, collateral shortfalls, and more missed margin calls," said Brett Williams, credit analyst with BNP Paribas in Hong Kong.
Among the counterparties for Carlyle's repurchasing agreements, Deutsche Bank, Merrill Lynch & Co. and Bear Stearns Cos. have sold off assets, the Wall Street Journal reported.
FEARS
June Bund futures FGBLM8 were 33 ticks higher at 117.95, and by 0839 GMT, the Markit investment-grade iTraxx Europe index was at 156.5 basis points, according to data from Markit, 10.5 basis points wider and erasing Wednesday gains. Continued...
