Carlyle faces more margin calls
By Henny Sender and Martin Arnold in London
Financial Times
Published: March 7 2008 18:56
The confrontation between the Carlyle Group and its bankers intensified on
Friday as the private equity group’s Amsterdam-listed fund teetered on
the
brink of collapse after receiving margin calls and default notices from
lenders.
As analysts forecast that Carlyle Capital Corp could go bankrupt unless
its
private equity founder injects more money, bankers said the situation was
likely to leave a stain on the reputation of one of the world’s biggest
buy-out firms.
CCC said its lenders had started to liquidate its ****tfolio of residential
mortgage-backed securities, which was worth $21.7bn at the end of
February,
after it had failed to meet a number of margin calls in the past week.
Shares in CCC were suspended on the Amsterdam stock exchange as it warned
that “additional margin calls and increased collateral requirements
could
quickly deplete its liquidity and impair its capital”.
The company said: “Management is closely monitoring the situation and
considering all available options for the company.”
Its shares were suspended at $5, well below their $19 initial public
offering price last July.
Analysts at Citigroup warned that unless Carlyle pumps more money into CCC
it “could be forced into significant asset sales into a weak market or
could
face bankruptcy”. Carlyle has already extended a $150m loan to help its
stricken fund.
Carlyle, like many other funds, is locked in a showdown with banks who are
reducing their financing lines to funds with big investments in mortgage
and
cor****ate securities. But the banks’ attempt to manage their exposure,
which
makes sense on an individual basis, risks precipitating a systemic crisis.
By cutting back on their lending, the banks are forcing funds to unload
securities. At the same time they are increasing the likelihood of a death
spiral in the market as funds such as Carlyle’s are selling those debts
into
a falling market, causing the prices to plunge further, which in turn
brings
on additional margin calls.
To the extent that banks hold many of those same securities, the banks
become victims of their own actions as they mark down their own positions.
The crisis in the mortgage-backed securities market has also hit Kohlberg
Kravis Roberts, which is struggling to keep its listed investment fund,
KKR
Financial Holdings, afloat after Standard & Poor’s cut ratings on its
commercial paper notes this week.
http://www.ft.com/cms/s/0/9025b64c-ec77-11dc-86be-0000779fd2ac.html
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