Carlyle bails out its $20bn Dutch fund takes a $40m loss on fire sale of $900m worth of assets and warns the dividend will not be paid
Carlyle, the private equity group, has been forced to double the size of a loan to its Dutch-listed investment vehicle after the struggling fund embarked on a string of asset sales and admitted it had been unable to meet recent margin calls.
Carlyle has now provided Carlyle Capital Corporation with credit facilities worth $200 million over just one week. Last Tuesday, Carlyle Capital said it had drawn only $10 million of a $100 million loan offered by the private equity group.
Today, it said that loan was fully drawn and Carlyle had made a further $100 million available – for one year, at an interest rate of 7 per cent.
Carlyle also bought an unspecified amount of debt securities from the fund and released it from a $75 million funding commitment relating to a distressed debt investment fund.
It represents the latest setback for Carlyle Capital, whose Amsterdam listing two months ago was scaled back and delayed due to choppy credit markets. At the end of June, Carlyle priced shares at $19 apiece to raise $300 million, having initially sought $415 million from shares sold for $20.
Carlyle Capital added that it had sold assets worth about $900 million, including four sets of structured credit products known as collateralised loan obligations. It said the sales represented less than 5 per cent of its assets, estimated at about $20 billion.
It said losses on the sales will be $30 million to $40 million, roughly equivalent to its post-tax profits over the past six months of $33.4 million. Although net interest income would offset some of the losses, it means Carlyle Capital will fall into the red in the third quarter. The fund said it was "unlikely" to pay a dividend for the period.
Shares slid more than 6.6 per cent to $14.00. The company has lost more than a quarter of its value following the listing.
The news comes a week after KKR Financial Holdings LLC, a listed affiliate of KKR, a rival US private equity firm, said it planned to raise about $500 million through a share sale to address "potential funding disruptions" linked to mortgage bond-related losses.
It was the second emergency move the fund had to make in as many weeks. Previously, the fund sold $5.1 billion of residential mortgage assets and interest rates swaps, resulting in a $40 million loss. If all its efforts failed, KKR Financial said it could take a charge of up to $200 million.
The sales came as John Stomber, the chief executive of Carlyle Capital Corporation, apologised to investors for a series of communications lapses and described the current credit crisis as worse than that which forced the bailout of Long Term Capital Management, the hedge fund, in 1998. He is due to talk with investors on a conference call tomorrow.
He said that, unlike 1998, the market for high-rated mortgage backed securities issued by American home loan giants Fannie Mae and Freddie Mac has been "materially affected by recent events". These forms of securities account for roughly 95 per cent of Carlyle Capital's portfolio.
Mr Stomber conceded that tightened terms imposed by some of its lenders meant that its "liquidity cushion has not been sufficient to meet recent margin calls".
"Management and the board have acted swiftly and definitively to address the dramatic change in our business environment," he said, as he acknowledged that Carlyle's communications with investors in recent weeks had been "unsatisfactory and frustrating to many of you".
The renewed bailout by Carlyle underscores the depth of the rout in certain areas of the credit market. A slump in the value of mortgage-backed securities, prompted by surging delinquencies among the most financially vulnerable American homeowners, has brought the debt and leveraged buyout markets to a grinding halt.
Carlyle only invests in AAA-rated mortgage securities and has now exposure to lower-rated, sub-prime markets. However, its exposure is exacerbated by leverage. The fund raised $600 million from a private placement before raising a further $300 million from the listing in July. Gearing its borrowing level helped increase assets to about $20 billion.
Carlyle Group was part of a three-member consortium that renegotiated terms of an agreed deal with Home Depot yesterday to buy the retailer's building supplies unit. The retailer slashed the price by almost $2 billion to $8.5 billion, the first price cut on a buyout deal since the credit crisis began to hit at the end of June. |
