Life for Carlyle Capital has gotten even worse than we reported
last week and by Thursday morning it appeared that the hedge fund would not survive.
Another loser from last week, Thornburg Mortgage had a bit of
a respite earlier this week but got clobbered by new news Thursday morning.
The Carlyle Capital Corporation, a subsidiary of the Carlyle Group a very well
connected private equity management company, said late Wednesday that it expected
that its assets would be seized by its creditors and liquidated;
an event likely to also cause the liquidation of the fund.
Carlyle Capital had used its $670 million in investor monies to build a portfolio
that was valued at 21.7 billion, a leverage factor of almost 32. But, unlike
most of the victims, although that seems a strange term to use, of the current
downturn, Carlyle was not an investor in subprime mortgages. Its portfolio consisted
entirely of Triple A rated securities backed by Freddie Mac
and Fannie Mae mortgages.
The fund said it has been working diligently with its lenders but had not been
able to reach a mutually beneficial agreement to stabilize its financing. Through
Wednesday the fund had defaulted on approximately $16.6 billion of its loans,
and expects to default on the rest.
Lenders which have begun to sell off the firm's assets reportedly include
Deutsche Bank, J.P. Morgan Chase, Citigroup, Bank of America, Merrill Lynch,
and Bear Stearns.
The Carlyle Group said in a statement on Wednesday that it did not own any
of Carlyle Capital's securities and maintained that it was only linked
to the fund by name, a $150 million credit line, and that 15 percent of the
funds securities are owned by the Group's employees. According to The
Wall Street Journal, the fund is operated out of the Group's New York
The stock, listed on the Amsterdam stock market, was trading at $0.37 at noon
Thursday, down $2.43 for the day.
Thornburg Mortgage, which appeared close to collapse late
last week got a bit of a reprieve early this week when, first of all it got
a boost from the Federal Reserve announcement that it would inject $200 billion
into the mortgage securities market. The Fed announcement, which helped carry
the market to the greatest single-day increase it had seen in five years, also
lifted Thornburg stock from trading lows of $.69 to close at $1.56 on Tuesday.
Then on Wednesday there was more good news. New Mexico Business Weekly reported
that the Santa Fe based Thornburg had been upgraded by Bear Stearn from "Under
Perform" to "Peer Perform." The stock reached as high as $3.01
on this news despite the fact that Thornburg on Tuesday reported to the Securities
and Exchange Commission that it was increasing its write-down for adjustable-rate
mortgage loses in 2007 58 percent to $676.6 million. This would bring its net
loss for the year from $875 million to $1.55 billion and the loss per share
of common stock from $7.48 to $12.97. The company had previous reported a profit
in the fourth quarter of 2007 but this was restated to a $605.9 million loss.
Then this morning MarketWatch reported that the company had received a default
notice from Morgan Stanley after it failed to meet a $9 million margin call.
Morgan Stanley said it would exercise its rights under an agreement covering
Thornburg's $49 million debt, thus once more throwing Thornburg's
survival in doubt.