THE CARLYLE Group yesterday admitted that it had failed to save its troubled $22 billion (€14 billion) mortgage-backed securities fund less than eight months after floating the heavily leveraged vehicle on Euronext Amsterdam.
Carlyle Capital Corporation (CCC), 15 per cent owned by employees of the Carlyle Group, said its banks were likely to take possession of its remaining assets and liquidate them after it ran out of cash to meet margin calls - demands for more collateral - that exceeded $400 million.
CCC represents one of the most dramatic casualties of the great unwinding that is occurring in the financial markets as lenders pull back from risk.
The fund, which had $31 of debt for every $1 of its own, had hoped to use its massive borrowings to generate higher returns from investments in highly rated mortgage securities.
Its strategy was undone by the turmoil in the mortgage markets, dealing a heavy blow to the reputation of Carlyle, one of the world's biggest private equity groups, and raising questions about whether it became too diversified.
Investors in CCC - who include many of the big investors in Carlyle's buyout funds - are asking why it was so late in cutting its use of borrowed money.
CCC said in a statement: "In total, through March 12th, the company has defaulted on approximately $16.6 billion of its indebtedness. The remaining indebtedness is expected soon to go into default."
CCC shares fell 87.5 per cent to €0.35.
The fund's collapse is likely to sour relations between Carlyle - one of the biggest sources of fees for Wall Street and the City of London - and the banks that were quick to push it into default. - (Financial Times service)
