Carlyle Fund Gets Default Notice After Margin Calls

(Bloomberg) -- Carlyle Group's publicly traded mortgage bond fund failed to meet margin calls and said it received a notice of default.

Carlyle Capital Corp. missed four of seven margin calls yesterday totaling more than $37 million, the Guernsey, U.K.- based fund said today in a statement. The fund expects to get at least one more notice of default related to the margin calls.

The collapse of the subprime mortgage market has prompted investors to flee all but the safest forms of debt, leading to the failure of hedge funds including Peloton Partners LLP. The Carlyle fund raised $300 million in July and used loans to buy about $22 billion of AAA rated so-called agency mortgage securities issued by Fannie Mae and Freddie Mac.

``The credit crisis is spilling over to the next asset class, agency bonds,'' said Philip Gisdakis, senior credit strategist at UniCredit SpA in Munich. ``There's never just one cockroach. If you see one highly leveraged hedge fund going bust, then there's another on the way.''

Peloton, the London-based hedge-fund firm run by former Goldman Sachs Group Inc. partners, announced plans last week to liquidate its ABS Fund after ``severe'' losses on mortgage-backed debt and demands from banks to repay loans. Thornburg Mortgage Inc. in Santa Fe, New Mexico, plummeted 62 percent in New York trading this week after the home lender received a default notice on a $320 million loan.

Widening Spreads

Carlyle Capital, run by John Stomber, fell 1.7 percent in Amsterdam trading today to $11.80. The fund originally sold shares at $19 each. Emma Thorpe, a London-based spokeswoman for U.S. private-equity firm Carlyle Group, declined to comment.

The agency mortgage-bond market has about $4.5 trillion of securities, according to estimates from UniCredit. The spread between 30-year agency mortgage bonds and 10-year U.S. Treasuries widened to more than 200 basis points yesterday, the highest since 1986, according to Bloomberg data cited by UniCredit today.

At the same time, money-market rates for euros and pounds climbed to the highest since mid-January, signaling the global squeeze on short-term bank lending may be returning. The three- month London interbank offered rate, or Libor, for euros advanced 1 basis point to 4.4 percent yesterday, the highest since Jan. 18, according to the British Bankers' Association.

``Market conditions are the worst anyone in this industry can remember,'' said Alain Grisay, chief executive officer of London-based F&C Asset Management Plc, on a conference call with reporters today. ``I don't think anyone has a recollection of a total disappearance in liquidity. I just cannot remember a time when for six months there are billion of dollars worth of assets out there for which there is just no market.''

 

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