Carlyle Capital could lose $16 billion of securities

Bloomberg reports “Carlyle Group’s mortgage-bond fund said creditors may liquidate as much as $16 billion of securities unless the two sides reach agreement on debt repayments. The fund has asked lenders to refrain from further sales after they liquidated collateral securing $5 billion of debt, Carlyle Capital Corp. said in a statement today. It is meeting lenders to discuss more than $400 million of margin calls and is “evaluating all options,” the Guernsey, Channel Islands-based fund said.

Carlyle Capital used loans to buy about $22 billion of AAA rated mortgage debt issued by Fannie Mae and Freddie Mac, which the firm says have an “implied guarantee” from the U.S. government. Even the safest mortgage bonds have slumped following the collapse of the subprime-mortgage market, leading to the failure of hedge funds led by Peloton Partners LLP. “This particular Carlyle entity wasn’t prepared,” said Philip Keevil, a senior partner in London at Compass Advisers LLP and former head of European mergers at Salomon Smith Barney Inc. “They hadn’t started selling ahead of time and now they’re having trouble liquidating their positions.”

“Due to recent turmoil in the market for mortgage-backed securities, the company’s lenders have significantly reduced the amount they are willing to lend against the company’s portfolio of U.S. government agency AAA-rated residential mortgage-backed securities,” Carlyle Capital said today. Unless Carlyle Group provides additional financing, the fund “could be forced into significant asset sales into a weak market or could face bankruptcy,” Citigroup Inc. analysts including Donald Fandetti in New York wrote last week in a note to clients. Thorpe declined to comment on the Citigroup report. Carlyle Group, the world’s second-biggest leveraged-buyout firm by assets, has extended $150 million in credit to Carlyle Capital since August.“