PHILADELPHIA U.S. private equity firm Carlyle
Group should emerge relatively unscathed by the cratering of
affiliate Carlyle Capital Corp CARC.AS (CCC), which invested
in mortgage-backed securities and defaulted on about $16.6
billion of debt, analysts said on Thursday.
CCC, a fund listed in Amsterdam, said late on Wednesday
that it expected its lenders to seize its remaining residential
mortgage-backed securities assets after failing to reach a deal
to refinance its debt.
The problems faced by CCC -- the decline in the value of
its mortgage investments -- marked another example of the
broader global credit crunch instead of a warning sign of
trouble ahead for The Carlyle Group [CYL.UL], analysts said.
"They don't lose much on a fund like this. It's like when
you drop an egg in your kitchen. You just clean it up and throw
it away. It's bad if you're the egg, but your kitchen is going
to be fine," said Roy Smith, a professor at New York
University's Stern School of Business.
The Carlyle Group's exposure to CCC is minimal from a
financial standpoint, analysts said. The Carlyle Group said CCC
is a separate legal and business entity, and CCC's defaults did
not trigger cross-defaults for any Carlyle borrowings.
"The people who invest with private equity funds are savvy
investors. They recognize that this was an experiment
undertaken by Carlyle to get into the mortgage business and
they have little other exposure," Smith said.
The Carlyle Group, one of the world's largest private
equity funds with more than $75 billion under management, owns
companies including TV ratings firm Nielsen, doughnut seller
Dunkin' Brands and former General Motors unit Allison
Managers at Washington, D.C.-based buyout firm The Carlyle
Group own about 15 percent of CCC, which listed in July 2007 as
the credit crisis began spreading through globally. Shares of
CCC sank 87 percent to 35 cents, a fraction of their $20 debut
price last July.
The Carlyle Group said it actively participated in the
negotiations with CCC's lenders and last year extended a $150
million credit line to its affiliate.
The one area where The Carlyle Group could face a minimal
public-relations blemish is in trying to attract new funds at a
time of big headlines about its affiliate collapsing.
"The Carlyle Group's general reputation continues to be
excellent; however, its fund-raising ability for private equity
ventures was certainly not helped by the problems with Carlyle
Capital," said Ray Soifer of Soifer Consulting LLC.
"In this, Carlyle is not alone; the entire private equity
community is encountering similar issues, to one degree or
another," Soifer said.
One lawyer, who specializes in private investment firms,
said The Carlyle Group will likely be unaffected by the CCC
meltdown, both in financial liability and in public perception
"These firms consist of a whole bunch of different
businesses and they are all structured as limited liabilities,"
said Jay Gould of Pillsbury Winthrop Shaw Pittman, who does not
Gould said Carlyle's long-cultivated image as astute
investors would probably remain largely unaffected, since many
banks, brokerages, hedge funds and others have been forced to
take big write-downs over declining asset values amid credit
travails in recent months.
"A lot of people are getting a pass on this and ultimately
they will too," said Gould.
(Reporting by Jessica Hall in Philadelphia and Dane
Hamilton in New York, editing by Leslie Gevirtz)
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