Thursday, March 13, 2008

Another US Fund Sank

And this wasn't good for the Asian markets.

  • Asian markets sank Thursday with investors spooked by news that a major U.S. fund, Carlyle Capital, expects its lenders to seize its assets and cause its likely liquidation. Carlyle Capital is an affiliate of private equity firm Carlyle Group.

    Carlyle said it has defaulted on around $16.6 billion of its debt and said the only assets held in its portfolio as of Wednesday were U.S. government agency AAA-rated residential mortgage-backed securities. During the last seven business days the company had received margin calls in excess of $400 million. Carlyle was unable to pay the margin calls, so its lenders had proceeded to foreclose on the mortgage-backed securities collateral. ( link
    here )

In another Bloomberg article, Carlyle Capital Lenders to Seize Assets `Promptly'

  • Carlyle Group's mortgage-bond fund, which received more than $400 million in margin calls since March 5, said it was unable to reach an agreement with lenders, who will ``promptly'' take over all of its remaining assets.
And of course there is more to come.

  • ``Carlyle won't be the end of it,'' said Greg Bundy, executive chairman of Sydney-based merger advisory firm InterFinancial Ltd. and a former head of Merrill Lynch & Co.'s Australian unit. ``There's more to come. The problem is no one can give you an educated guess about how much.''

What was interesting was the following.

  • The blowup is a rare setback for Carlyle Group co-founder David Rubenstein, who created the fund and tapped public markets for $300 million last year to expand the Washington-based firm beyond leveraged buyouts.

    The fund originally delayed and then cut the size of its IPO by about 25 percent as the subprime contagion began.
    It then added the money raised in July 2007 to a private $590 million pool opened in 2006. For every dollar of equity, the pool borrowed $32.

    ``It was a poorly conceived fund launched at the worst time,'' said Toby Nangle, a member of the strategic policy group at Baring Asset Management in London, which manages $55 billion.

    Carlyle's fund has said its so-called agency debt has an ``implied guarantee'' from the U.S. government.

See also Carlyle Fund's Assets Seized