The stricken Amsterdam-listed mortgage-backed securities fund Carlyle Capital Corporation has admitted that negotiations with its lenders have failed to yield an agreement to stabilise its
The stricken Amsterdam-listed mortgage-backed securities fund Carlyle Capital Corporation has admitted that negotiations with its lenders have failed to yield an agreement to stabilise its financing, and it now expects the creditors to seize effectively all of its remaining assets.
Earlier this week creditors seized and sold in the open market an estimated USD5.7bn in assets pledged by Guernsey-domiciled Carlyle Capital as collateral after was unable to meet a series of escalating margin calls amid uncertainty over the value of its assets.
From a peak of USD20 following its initial public offering on Euronext Amsterdam last July, and USD12 as recently as last week, the company’s share price had fallen to EUR0.83 in morning trading on March 13.
Carlyle Capital was established on August 29, 2006 with a reported USD670m in capital from principals of the fund’s sponsor, private equity giant Carlyle Group, and other investors, and it raised USD345.5m from the IPO eight months ago. The fund is managed by group subsidiary Carlyle Investment Management.
Using more than 20 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 billion in non- residential mortgage-backed security assets to improve liquidity and reduce leverage, and also received a USD150 million subordinated revolving credit line from the Carlyle Group.
However, the deepening uncertainty over the value of mortgage-backed securities held by financial institutions has raised doubts about even the most conservative securities. Over the past week and a half Carlyle Capital has received margin calls exceeding USD400m that it was unable to meet.
Last week the company announced that since filing its annual report on February 28, it had been subject to margin calls and additional collateral requirements totalling more than USD60m million.
Up to March 5, it met all of the margin requirements, but on that date it received additional margin calls from seven of its 13 lenders totalling more than USD37m, and met only three of the margin calls after the other counterparties declined to enter talks about a financial restructuring, precipitating a rash of further margin calls.
The company says that up to March 12 it had defaulted on some USD16.6bn in debt and that its remaining borrowings are also expected to go into default soon. Over the past week Carlyle Capital has been negotiating with its lenders over a possible rescue plan that would involve an injection of additional capital from the Carlyle Group.
In a statement, Carlyle Capital says: ‘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.’
So far, Carlyle Capital says, no creditors or shareholders appear to have instituted legal action against the company.