LONDON -- The Carlyle Group's troubled mortgage-debt investment fund, Carlyle Capital, said yesterday that it had asked lenders to halt further liquidation of collateral worth as much as $16 billion while the two sides discuss ways to repay the debt.
The fund, which invests mainly in triple-A rated mortgage securities issued by Fannie Mae and Freddie Mac, has received $400 million in margin calls, and some lenders started to liquidate collateral for $5 billion in debt. Banks are asking for their money back amid concerns the economic climate may deteriorate further.
The Carlyle fund said yesterday that it had "requested a standstill agreement whereby its lenders would refrain from foreclosing and liquidating their collateral, and we are awaiting responses."
Banks are asking for more collateral to cover loans after writing down more than $160 billion in assets linked to the subprime mortgage crisis, and fears of a recession are prompting them to call in some loans outright. Costs to protect even the safest bonds are close to a record, and investment funds such as Carlyle Capital are finding it increasingly difficult to meet rising demands for collateral as the value of their portfolios declines with the financial markets.
"At the beginning, banks were willing to accept not to trigger margin calls because they feared forced assets sales," said Philip Gisdakis, a senior credit strategist at Unicredit in Munich, Germany, "but now that there is a serious deterioration in the valuation of collateral, they cannot do that any longer and need to protect their loans."
The Carlyle fund, which sold shares in an initial public offering on the Amsterdam stock exchange last summer, shares some of the Carlyle Group's management and received a $150 million credit line from the firm. Among the fund's lenders are Citigroup, Bank of America and Merrill Lynch.
With the help of the Carlyle Group, the fund continues to meet with lenders to discuss the situation and said it "is evaluating all available options to maximize value for all interested parties." Should the fund fail to reach an agreement with the lenders or to find new financing, it might have to close, some analysts said last week.
Peloton Partners, a London hedge fund run by former Goldman Sachs partners, liquidated its largest funds last month after it failed to reach an agreement with some lenders on the levels of collateral.
Thornburg Mortgage, a mortgage lender in the United States, also ran into trouble after it failed to meet some margin calls. More funds that used a high level of leverage to buy less-risky assets are likely to face difficulties, Gisdakis said.