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 offices.
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.