Something seems to have gone badly awry at Carlyle Capital, the so-called permanent capital vehicle floated by Carlyle Group on Euronext.
When investors were being tapped for $880m just two eventful months ago, chief executive of Carlyle Capital, John Stomber was confident enough to state:
“This is as far away from subprime as you can possibly get. This is double or triple A.”
Not far enough, clearly. With the shares having fallen by a third since flotation, early on Tuesday Carlyle Capital announced the second bail-out in the space of seven days, with a series of asset sales and a fresh credit line from its parent.
Except that the first bail-out was not described as such. Last Tuesday, the Carlyle Group was all sweetness and light as it announced a $100m loan to its Capital off-shoot, stating:
The Carlyle Group’s loan commitment enhances our ability to meet margin calls and positions us to take advantage of new opportunities as they present themselves.
Despite the general improvement in market conditions, those “opportunities” (not to mention the pesky margin calls) were clearly bigger than expected. Carlyle Group has now doubled the emergency loan to Capital to $200m,while the listed company has also sold $900m of assets to “affiliates” of its parent – namely, four CLOs, its entire mezzanine debt portfolio, a “substantial portion” of its bank loans and a $75m commitment to another Carlyle fund.
The immediate loss to Carlyle Capital is put at between $30m and $40m.
All this despite Carlyle insisting that its portfolio was, as it were, safe as houses and 95 per cent invested in the US giants Fannie Mae and Freddie Mac, which according to Carlyle had the “implied guarantee of the US government.”
Some investors are clearly livid that they only discovered problems through the financial pages. The fund has now apologised for an “unsatisfactory” and “frustrating” lapse in communication, because it “relied on press releases and its website rather than communicating directly with individual shareholders.” An analysts’ call has been scheduled for 2pm London time on Wednesday.
Has the fund now come clean? Pulling few punches, Stomber describes the current credit crisis as worse than that which affected Long Term Capital Management in 1998.
But questions linger, such as who or what the affiliates are that have bailed Capital out? And, given that the $75m release on the fund commitment was to one of Carlyle’s distressed debt vehicles, wasn’t this a timely investment to pursue?
Cash, clearly, is at a premium. Investors should not expect a third quarter dividend since the directors believe “the company should focus on preserving capital and rebuilding its liquidity cushion.”