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Carlyle Capital Corporation to file for compulsory winding up in Guernsey

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Class A Shareholders of the Amsterdam-listed mortgage-backed securities fund Carlyle Capital Corporation have followed the recommendation of its board of directors and voted in favour of c

Class A Shareholders of the Amsterdam-listed mortgage-backed securities fund Carlyle Capital Corporation have followed the recommendation of its board of directors and voted in favour of compulsory winding up proceedings under the Companies Law in Guernsey.

The company will now move forward with the winding up and liquidation application. During a compulsory winding up, all remaining assets will be liquidated by a court-appointed liquidator.

As it expected, Carlyle Capital received default notices from its remaining two lenders and believes that its lenders have now taken possession of substantially all of its US government agency AAA-rated residential mortgage-backed securities, leaving it its liabilities that exceed its assets.

The recommendation was made by the board following extensive analysis of the company’s prospects and careful consideration of other options for continuing the business. The company says it will work with the court-appointed liquidator to ensure an orderly realisation of assets and their subsequent distribution.

Last week Carlyle Capital admitted that negotiations with its lenders had failed to result in an agreement to stabilise its financing, despite the offer of a capital injection from its sponsor, the Carlyle Group, whose managers and employees had USD150m invested in the highly leveraged fund.

Carlyle Capital was established in August 2006 with some USD670m in capital from principals of private equity giant Carlyle Group, and other investors, and it raised USD345.5m from an IPO in Amsterdam last July.

Using more than 30 times leverage, the fund invested in a USD21.7bn portfolio of AAA-rated residential mortgage-backed securities issued by the US government agencies Fannie Mae and Freddie Mac, which up to now have been considered extremely safe investments.

Since the liquidity crisis in global fixed income markets began last August, the fund says, it has sold almost USD1bn in non-residential mortgage-backed security assets to improve liquidity and reduce leverage, and also received a USD150m subordinated revolving credit line from the Carlyle Group.

However, this month Carlyle Capital received margin calls exceeding USD400m that it was unable to meet, and it was unable to persuade its lenders to ease their financing terms sufficiently for the fund to survive.

In a statement last week, the company said said: ‘Negotiations deteriorated late on March 12 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 tomorrow of approximately USD97.5m.

‘Overall, it has become apparent to the company that the basis on which lenders are willing to provide financing against the company’s collateral has changed so substantially that a successful refinancing is not possible.’

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