The Carlyle Group has added a second USD100m loan facility to boost the liquidity provision of its listed debt fund Carlyle Capital Corporation, which was floated on the Euronext Amsterdam exchange just two months ago, after an initial USD100m loan a week earlier was used up. The private equity giant has also acquired mezzanine debt and four collateralised loan obligations from the fund and released Carlyle Capital from an obligation to inject USD75m into another Carlyle distressed fund.
Carlyle says it has taken these steps so to enable the Guernsey-domiciled fund to withstand a liquidity disruption the group has described as worse than the Russian debt default crisis which led to the collapse of Long Term Capital Management in 1998. The fund has invested in USD22.7bn worth of mortgage-backed securities.
Home Depot, the second-biggest retailer in the US, had to agree to a lower price tag for HD Supply, its wholesale unit. The subsidiary went for USD8.5bn to a consortium of Bain Capital, Carlyle Group and Clayton, Dubilier & Rice. The deal originally agreed in June put a USD10.3bn price tag on the business.
Home Depot will put up USD325m for a 12.5 per cent stake in the business and will guarantee a USD1bn senior secured loan that forms part of the financing supporting the buyout. The parties attribute the reduction in price to the credit squeeze and the continuing slump in the US housing market.
SEC prepares to impose anti-fraud rule
The SEC is preparing to impose a new anti-fraud rule applicable to hedge funds after the five commissioners voted unanimously to clarify a cloudy area of its investment management regulations. The rule prohibits those who advise investors in hedge funds or pooled investor vehicles from making false or misleading statements to existing or future investors with the aim of defrauding them.
The rule stems from a 2005 case before the US Court of Appeals brought by Philip Goldstein of Opportunity Partners, which resulted in the overturning of the requirement imposed by the SEC the previous year for hedge fund managers to register with the regulator.
The rule seeks to reinforce the validity of the 1940 Investors Advisers Act governing cases where investors in a pool are defrauded by an adviser. This was cast into doubt by the 2005 court ruling that suggested that the SEC had exceeded its statutory powers.
The SEC is introducing the new rule to clarify its authority over account statements for investors, as well as private placement memorandums, offering circulars or responses to proposal requests for prospective investors. The rule was published on August 11 and will go into effect on September 10.
The past two months have seen a series of losses in the hedge fund industry that have prompted lawsuits from aggrieved investors, including two high-profile funds managed by Bear Stearns that filed for bankruptcy protection last month, and Sentinel Management, which has filed for Chapter 11 bankruptcy protection and been charged with fraud by the SEC.
Morgan Stanley identified as backer of troubled SIV
US investment bank Morgan Stanley has been identified as the firm that arranged financing for Cheyne Finance, a USD6.6bn structured investment vehicle that being wound down by Cheyne Capital Management after suffering heavy losses. Morgan Stanley is also a dealer on commercial paper and medium-term notes along side Lehman Brothers, Merrill Lynch and Barclays.
Cheyne Capital told investors that losses on its investment portfolio had resulted in it breaching the terms of its financing, but it hopes to complete a gradual and orderly sale of the investments. The London fund manager was established in 2000 and has a total of some USD13bn assets under management.
Private equity annual returns could decline to 10 per cent or so from the current 30 to 40 per cent over the next three years, according to industry participants. Tougher credit markets will hold down the resale value of portfolio companies of private equity funds.
Hedge fund assets rose USD41.1bn during the second quarter of 2007, and combined with performance gains, total hedge fund assets rose to USD1.67 trillion, according to Lipper Tass, before the recent meltdown in the credit markets.
A derivatives index that gauges the state of US sub-prime mortgage bond market slumped to a new low following the publication of data that shows a record rise in delinquency rates for the month of August and the greatest quarterly decline in house prices since records began two decades ago. The ABX-HE index fell to 32.16 from 36 at the beginning of August.
UBS Global Asset Management has hired a credit specialist for O'Connor, its hedge fund arm. Mark Melchiorre, who previously worked at Credit Suisse as a senior member of its high-yield credit trading group, has come on board this month as head of credit trading strategies. O'Connor manages USD7bn of assets.
Activist investor Carl Icahn is set to become a board member of US home building company WCI Communities, in which he has amassed a sizeable stake.