Carlyle cashflow alert stokes fears

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Guernsey-based Carlyle Capital Corporation (CCC), which owns $22 billion (£11.01 billion) of mortgage-backed investments, has been plunged into crisis by the turmoil in the home loans
markets.

It warned yesterday that it had been unable to meet margin calls — demands for collateral payments to cover losses in the value of loans it had taken out — from seven of its lenders. Today, it issued a further statement cautioning that it had received further margin calls, plus additional default notices from the lenders.

Meanwhile, a number of lenders who had previously issued default notices had liquidated some of its residential mortgage-backed securities. CCC has now been told by its lenders that additional
margin calls and increased collateral requirements would be "significant and well in excess of the margin calls it received Wednesday".

It warned: "The company believes these additional margin calls and increased collateral requirements could quickly deplete its liquidity and impair its capital."

The Carlyle Group parent company, led by co-founder David Rubenstein, put up $200 million last August to meet CCC margin calls. Today he and Carlyle were seeking to reassure investors the CCC problems would not have a material impact. CCC is facing essentially the same problems as many other hedge funds including London-based Peleton Capital, which collapsed last week after finding it was unable to cover margin calls to repay loans it had made to buy mortgage-backed securities.

The crisis at CCC highlights how the mortgage market turmoil has spread from subprime to prime. CCC only invested in highly rated mortgage assets issued in the US. But panic about mortgage financing has meant even higherquality mortgage assets like those owned by CCC are being slashed in value. Since the company borrowed heavily to buy the mortgage assets before their value plunged, its lenders, including Bank of America, Bear Stearns and Citigroup have demanded more collateral to guarantee their loans.