Details of Carlyle’s situation were released by the fund on Monday morning. CCC is facing/faced margin calls of $400m from its lenders, who have already liquidated $5bn of Carlyle assets held under repo agreements.
Another $16bn of FNMA and FHMLC assets are on the line - with Carlyle in “ongoing negotiations” with lenders.
What’s curious, though, is that, as the statement makes clear, deficiency notices haven’t been sent to Carlyle on the assets liquidated so far - in other words, the assets held their par value. Why then, were margin calls being made in the first case?
Indiscriminate repo desks. As the FT’s James Mackintosh explained last week, unlike prime brokerage desks, banks’ repo teams are broader, more generalist operations:
A prime broker is frequently closely involved in setting up a hedge fund, nursing the manager through administrative problems and helping raise money. Moving from one prime broker to another is difficult and dependent not just on the prices offered but the depth of the relationship. Even big funds only have a handful of prime brokers.
By contrast, the repo desk operates in a far more competitive and price-driven environment, with borrowers often having a dozen or more lenders.
Carlyle Capital’s repo counterparties are: Bank of America, Bear Stearns, BNP Paribas, Calyon, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Lehman, Merrill Lynch and UBS.
The CCC statementNew York, NY - Carlyle Capital Corporation Limited (Euronext Amsterdam ticker symbol: CCC; ISIN: GG00B1VYV826) (the Company) today announced that the Company, with the assistance of The Carlyle Group, is continuing to meet with its lenders to discuss the current situation and is evaluating all available options to maximize value for all interested parties. The Company is also continuing to work with the various regulatory agencies to keep them informed of recent events.
Due to recent turmoil in the market for mortgage-backed securities, the Company’s lenders have significantly reduced the amount they are willing to lend against the Company’s portfolio of U.S. government agency AAA-rated residential mortgage-backed securities (RMBS). As a result, the Company’s lenders have issued margin calls in excess of $400 million. Furthermore, since Wednesday, March 5, the Company’s lenders have advised the Company that they believe the Company is in default under financing agreements. The Company believes that certain lenders may have liquidated in the open market the collateral securing approximately $5 billion of indebtedness. The Company has not received any deficiency notices from those lenders who sold collateral to cover the borrowings.
The Company is in ongoing negotiations with the remaining lenders, who hold approximately $16 billion in securities, and, if a mutually beneficial agreement is not reached, some of these lenders may also liquidate their securities. While these talks continue, the Company has discussed and requested a standstill agreement whereby its lenders would refrain from foreclosing and liquidating their collateral, and we are awaiting responses.
To the best of the Company’s knowledge, no creditors have instituted legal action against the Company of any kind.
Related links
Carlyle Capital seeks standstill pact - FT.com
