Carlyle Capital to fold

Unable to stabilise its financing, the credit-focussed affiliate of buyout giant The Carlyle Group has resigned itself to liquidation by creditors.

Carlyle Capital Corporation, a mortgage-bond specialist affiliated to The Carlyle Group and publicly traded on Euronext Amsterdam, has thrown in the towel after negotiations with its creditor failed to stabilise its financing.

The company, which had been rocked by the credit crisis said it had been “working diligently with its lenders” but had not reached a “mutually beneficial agreement”. It now expects its lenders to take possession of substantially all of the company’s remaining assets.

The only assets held in the company’s portfolio are US government agency AAA-rated residential mortgage-backed securities. During the last seven business days, the company received margin calls in excess of $400 million.

Calyle Capital said it was unable to pay these margin calls, so its lenders foreclosed on the collateral. In total, up to 12 March, the Carlyle Group affiliate has defaulted on approximately $16.6 billion of its indebtedness. The remaining indebtedness is expected soon to go into default.

It said it explored a variety of proposals with its lenders in an attempt to refinance its portfolio on sustainable terms. The Carlyle Group participated actively in those negotiations and was prepared to provide substantial additional capital if a successful refinancing could be achieved, according to a statement.

Negotiations deteriorated late on 12 March when, among other things, the pricing service utilised by certain lenders reported a drop in the value of the residential mortgage-backed securities collateral that is expected to result in additional margin calls today of approximately $97.5 million.

Carlyle Capital said the basis on which lenders were willing to provide financing against the company’s collateral had changed so substantially that a successful refinancing was not possible.

Yesterday, The Carlyle Group distanced itself from its affiliate, saying it expected minimal reputational damage.