Carlyle Capital on brink of collapse

An affiliate of US-based buyout firm Carlyle Group has defaulted on about $16.6 billion of debt and expects its lenders to seize remaining assets as the global credit crunch tightens around leveraged investors.

Carlyle Capital Corp, a fund listed in Amsterdam, said in New York late on Wednesday that talks with lenders deteriorated after a drop in the value of its mortgage investments, which it said would result in margin calls of $97.5 million on top of the $400 million it was already facing.

A "successful refinancing is not possible," Carlyle Capital said, after trying for the past week to work out a deal with lenders to stave off bankruptcy.

Bund futures in Europe rose after the news back to levels they traded at before the US Federal Reserve and other central banks coordinated on Tuesday to inject liquidity into credit markets. The dollar also fell.

The credit crunch, triggered last year when subprime mortgages made to risky US borrowers went sour, has put increasing pressure on lenders to shore up capital and made it difficult to value collateralised debt, mortgage portfolios and other fixed-income securities - the investments that Carlyle Capital was set up to invest in.

"We've been expecting for a while for the hedge funds to get into trouble," said Andrea Cicione, a credit strategist at BNP Paribas, one of Carlyle Capital's lenders.

He noted that Carlyle Capital had to come clean because it was listed and he expected more funds to go bust.

The default by the fund prompted spreads to widen on the iTRAXX Asia ex-Japan investment grade index, and European credit spreads also widened, returning close to record wide levels touched earlier in the week.

June Bund futures were 35 ticks higher at 117.98, and the dollar was near 12 year-lows against the yen. Carlyle Capital, based in Britain's offshore dependency of Guernsey, said the only assets it has left are AAA-rated residential mortgage-backed securities, and it expected lenders to foreclose on this collateral.

"It has become apparent to the company that the basis on which lenders are willing to provide financing against the company's collateral has changed so substantially that a successful refinancing is not possible," Carlyle Capital said.

Its shares tumbled 73 per cent to $0.73 by 1200 GMT, a fraction of their $20 debut price last July. Dutch market regulator AFM said it was monitoring developments closely.