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Carlyle Capital Corporation - Bonds, including CDOs

2008-03-12

Count of distinct funds: 1
Capital base: $900 million
Loss: $30-40 million on $900 million sale

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stories: ft.com, ft.com, bloomberg.com, minyanville.com, co.uk, co.uk

Update, 2008-03-17:

FT has an article confirming the last formalities with winding up Carlyle and selling of its assets have been completed:

Carlyle Capital Corporation is to be wound up after the $22bn Amsterdam-listed mortgage fund said its shareholders had approved an application for a court appointed liquidator to sell its remaining assets.

The move sounds the death knell for an abortive attempt by the Carlyle Group, one of the world’s biggest private equity groups, to tap public markets for an ill-timed and highly leveraged venture into mortgage-backed securities.

This was all of course no thanks to the Fed, which probably hastened the seizure and selloff of Carlyle assets by creating its TSLF facility last week, allowing banks greater ability to monetize dodgy collateral. Incidentally, this portends ill for other hedge funds that might have been hanging by a thread.

Gary North has a good essay with some Carlyle post-mortem comments here. The list of Carlyle counter-parties is a whos-who of the big banks, who were effectively rescued by the Fed's TSLF.

Update, 2008-03-14:

Stick a fork in CCC: Carlyle fails to save $22bn CCC fund.

Update, 2008-03-13:

Bloomberg is all but calling it over:

Carlyle Group said creditors plan to seize the assets of its mortgage-bond fund after it failed to meet more than $400 million of margin calls, heightening concern about a lending freeze that led to a plunge in the dollar and global stock markets.

...

Carlyle Capital's plea for refinancing on residential mortgage-backed securities failed late yesterday after a pricing service used by some lenders reported a decrease in the value of the assets, the firm said.

Carlyle itself admits that the fund ill-advisedly used 32-times leverage. Other interesting diagnostic comments include:

The fund's losses were caused by ``excessive leverage,'' said Arthur Levitt, a senior Carlyle adviser, in a Bloomberg Radio interview today. ``This did not affect the overall Carlyle enterprise,'' said Levitt, former chairman of the Securities and Exchange Commission and a board member of Bloomberg LP, the parent of Bloomberg News.

``It was a poorly conceived fund launched at the worst time,'' said Toby Nangle, a member of the strategic policy group at Baring Asset Management in London, which manages $55 billion.

and:

``This is not only a problem for Carlyle,'' Jochen Felsenheimer, the Munich-based head of credit strategy at UniCredit SpA, wrote in a note to clients today. ``We expect a further flood of downgrades especially of higher-rated securities, putting enormous pressure on the system.''

Update, 2008-03-12:

Timesonline UK has the update on Carlyle's now-well-underway liquidation:

Meanwhile, Carlyle Capital Corporation (CCC), the Dutch-listed affiliate of US private equity firm Carlyle, said yesterday that banks seized and sold another $700 million of assets, bringing the total liquidated to $5.7 billion.

CCC, which invests in mortgage-backed securities, said it was still in negotiations with its banks to prevent them from liquidating the remaining $16 billion of assets.

It had asked the banks to grant standstill agreements while talks were held and said that no further notices of defaults had been received. CCC has already received $150 million in a revolving credit facility from Carlyle Group.

At this point it looks like a foregone conclusion that this Carlyle fund is not coming back.

Original Ailing Writeup, 2007-08-28:

Private equity group Carlyle is working to save its Dutch publicly-listed subsidiary Carlyle Capital Corporation, an investment fund described in this EuroNext press release as a "hedge fund" which invests in various sorts of bonds.

According to the TimesOnline article above, Carlyle has extended about $200 million of credit to the fund in just a week. $30-40 million was lost on a sale of about $900 million in bonds, and Carlyle is apparently hoping to "plug the dike" (the fund is based in Amsterdam).

Around $600 million was raised privately and $300 publicly just a few months ago to start the fund. It is estimated that the fund has around $20 billion in positions, representing a gearing somewhat over 10x.

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Important: This fund is on our list of hedge funds that have "imploded" (see also ailing lenders). However, please note that "imploded" is a somewhat subjective. The "imploded" list contains hedge funds (or other unregulated and autonomous speculative investment funds) which have gone through some sort of permanent adverse change. This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid mark-downs in net asset value; or abnormal "bail-out" by corporate parents or peers in order to avoid write-downs and provide liquidity. The funds are of any type and sector.