March 7, 2008 / 6:24 AM / 12 years ago

Carlyle affiliate warns on cash after margin calls

AMSTERDAM/LONDON (Reuters) - A Dutch-listed affiliate of private equity firm Carlyle Group CYL.UL said on Friday it had received additional margin calls from lenders and warned its cash could run out.

David Rubenstein, Co-Founder and Managing Director of The Carlyle Group, speaks at the "M&A Outlook 2008" conference in New York November 7, 2007. The private equity firm's Dutch-listed affiliate said on Friday it may face cashflow problems after it received substantial additional margin calls and default notices. REUTERS/Mike Segar

Carlyle Capital Corporation (CCC) said it received more margin calls and default notices from lenders since Wednesday when it reported receiving demands for extra collateral to cover market positions totaling over $37 million.

Its latest margin calls and increased collateral requirements could quickly deplete its liquidity and impair its capital, CCC said in a news release.

“At this stage the liquidation of the fund cannot be excluded nor the potential loss of its capital, rendering the shares worthless,” Bear Stearns analyst Keith Baird said in a note.

Even more securities could be liquidated by lenders, CCC said, adding the company was in discussion with its banks regarding its financing and considering all available options.

The Dutch market regulator (AFM) suspended trading in CCC stock after its shares closed on Thursday at $5, having lost more than half their value.

Carlyle Group has a $150 million exposure to CCC through a credit facility. A spokeswoman for the buyout firm on Friday refused to say whether Carlyle would provide more support to

CCC.

Carlyle Group’s affiliation with CCC includes management links as Carlyle Group partners Bill Conway and Michael Zupon sit on CCC’s board of directors.

MARGINS CALLS

According to CCC’s annual report, counterparties for its repurchasing agreements were as of the end of 2007: Bank of America, Bear Stearns, BNP Paribas, Calyon, Citigroup, Credit Suisse, Deutsche Bank, ING, JP Morgan, Lehman Brothers, Merrill Lynch and UBS.

CCC said on Friday some of its Residential Mortgage-Backed Securities (RMBS) had been liquidated by such lenders and additional margin calls and increased collateral requirements “would be significant and well in excess of the margin calls it received Wednesday”.

Mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, like those traded by CCC, 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.

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

As of last month, CCC 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.

It reported a 2007 net profit of $16.8 million last month and Carlyle Group agreed to increase the unsecured revolving credit facility to $150 million from $100 million.

CCC decided against a dividend for the fourth quarter after a $34 million loss in the third.

Washington DC based The Carlyle Group has more than $75 billion under management and has attracted a string of high-profile advisers including U.S. President George Bush in the early 1990s and former British Prime Minister John Major.

This week it said it had hired Olivier Sarkozy, half-brother of French President Nicolas Sarkozy, from investment bank UBS as it looks to “capitalize on the dislocation in the financial services sector”.

Additional reporting by Gilbert Kreijger; Editing by Catherine Evans and Jason Neely

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