Carlyle unit misses some margin calls

Carlyle Capital Corp became the latest casualty of the banks’ increasingly unforgiving attitude towards even the most powerful private equity funds on Thursday when the highly leveraged mortgage-backed securities fund said it had failed to meet margin calls from some of its lenders.

The fund, listed in Amsterdam by the Carlyle Group last year, has been hit by a fall in the value of its $21.7bn portfolio of AAA-rated residential mortgage-backed securities, illustrating that even the safest investments can be perilous when combined with the use of massive amounts of borrowed money. Carlyle had $28 of borrowings for every $1 of its own money.

Carlyle said it had received one notice of default in recent days after its banks made $37m of margin calls. It expected to receive at least one.

“When funds are as leveraged as the Carlyle fund was, there is no room for error,” said one former Carlyle executive.

“Carlyle has taken extraordinary measures to help CCC manage through this liquidity crisis including purchasing certain of CCC’s investment in other Carlyle sponsored funds and providing a $150m subordinated line of credit to the fund,” Carlyle said in a note to investors in the fund.

CCC said it had met margin calls from three banks that had “indicated a willingness to work with the company during these tumultuous times”.

The fund did not elaborate on how it planned to address the violation of its financing agreements. “Management is actively working with the company’s repo counterparties to develop more stable financing terms,” the release added.

The default by CCC follows the collapse of Peloton Partners, a London-based hedge fund manager, which last week said it was liquidating its flagship $2bn fund, which had invested heavily in top-rated mortgage securities.

It also mirrors the difficulties of KKR Financial Holdings, the listed affiliate of Kohlberg Kravis Roberts, which last month said it was in talks with lenders after delaying repayment of commercial paper for a second time.

CCC last year scrapped its dividend, sold $900m of assets and extended a $150m credit line from Carlyle, as it faced $482m of margin calls from lenders in the second half of last year.

Shares in the fund fell sharply after the announcement, dropping 58.3 per cent to $5, well below its $19 issue price in its initial public offering on July 4. Its equity was worth $255.4m at the close of trading, well below its net asset value. On Thursday, it said seven of its 13 banks had submitted $37m of margin calls to CCC on Wednesday.

"Isn't daddy Bush an adviser(or board member) of this corporation?" A lot of former Republican White House Staff run the company including Bush the Elder. It was Reagan's Sec. of Def. Frank Carlucci that started the company. It was essentially a post White House gig for a lot of Reagan's staff.

http://rightweb.irc-online.org/profile/1067.html

"Frank Carlucci, Ronald Reagan’s defense secretary and a former CIA deputy director, has had a colorful career as a government insider and corporate player. The Carlyle Group, which Carlucci headed for nearly a decade, has been called the “ex-president’s club” because of the large number of high-powered former government officials who work for the investment company, including former President George H. W. Bush, former British Prime Minister John Major, and former Secretary of State James Baker. Reports The Guardian, “When Carlucci arrived there [with Carlyle] in 1989, he brought with him a phalanx of former subordinates from the CIA and the Pentagon, and an awareness of the scale of business a company like Carlyle could do in the corridors and steak-houses of Washington. In a decade and a half, the firm has been able to realise a 34% rate of return on its investments, and now claims to be the largest private equity firm in the world. Success brought more investors, including the international financier George Soros and, in 1995, the wealthy Saudi Binladin family, who insist they long ago severed all links with their notorious relative. The first president Bush is understood to have visited the Bin Ladins in Saudi Arabia twice on the firm's behalf.” (9) When Carlucci isn’t busy fending off questions about how Carlyle does its business, he is fighting accusations that he was involved in the assassination of former independent Republic of Congo Prime Minister Patrice Lumumba when Carlucci was second secretary at the embassy in Kinshasa in the early 1960s. In 2002, Carlucci’s lawyers successfully pressured the distributor of the HBO film Lumumba to delete any references to their client. A scene that was cut from the movie depicted Carlucci and his boss, Ambassador Clare Timberlake, in a meeting with Congolese officials who were plotting Lumumba's murder. Carlucci contends that he and Timberlake had no knowledge whatsoever of the plot, telling Pacific News, "There's no substantiation to that charge in any of the reviews done on Lumumba's death by the United Nations or the recent Belgian book or Maddie Kalb's book. ... If you go through the Kalb book [which was based on declassified U.S. cables], you'll find no references to me." However, there seem to be several problems with Carlucci’s contention, starting with the fact that the Kalb book does in fact mention Carlucci. Pacific News quotes the book: "Whenever Timberlake, accompanied by his French-speaking second secretary, Frank Carlucci, went to see Kasavubu ... to try to persuade him that Lumumba was an extremely dangerous man, Kasavubu ... would say nothing. ... As Timberlake noted in a gloomy cable to Washington, 'I confess I have not yet learned the secret of spurring Kasavubu to action.'" Pacific also cites a letter from Ludo de Witte, author of the “recent Belgian book” The Assassination of Lumumba, to Raoul Peck, the filmmaker who made the HBO film: "From mid-August (when Eisenhower gave indirectly the green light for the assassination of Lumumba) till mid-October, there was a de facto collaboration and exchange of information between all important personnel in the U.S. Embassy (that is Timberlake, Carlucci and Devlin included), including on efforts to get rid of Lumumba." (2) Carlucci, who went on to have an extremely successful career in government after the Lumumba affair, has received several awards and honors for his work, including the Herbert Roback Memorial Award, the George C. Marshall Award, the Woodrow Wilson Award, the James Forrestal Award, the Presidential Citizens Award, the National Intelligence Distinguished Service Medal, the Distinguished Intelligence Medal, the Defense Department Distinguished Civilian Service Award, and the State Department Superior Service Award. (3)"

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