What a surprise that the first family has ties to bad business.
A bond fund managed by private equity firm Carlyle Group, revealed on Thursday that it has received a note of default after failing to meet several payment demands.Do you think the ties to the Bush family will get media attention? I doubt it.
Shares of Carlyle Capital Corp. Ltd. plummeted more than 50% on the news that it had missed four out of seven margin calls totaling around $37 million on Wednesday. A margin call is a payment to guarantee a much larger debt or investment.
Carlyle Capital said one creditor has issued a default notice and it expects to receive a second such notice, adding to market worries about forced liquidations of residential mortgage-backed securities.
Carlyle Capital's difficulties will have "no material impact on the Carlyle Group or its funds," Christopher Ullman, a spokesman for Washington-based Carlyle Group, said. Carlyle Group, one of the world's largest private-equity firms with $76 billion under management, manages 55 funds in 21 countries.
As of last month, Carlyle Capital had a $21.7 billion investment portfolio of AAA-rated floating-rate capped U.S. mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.
Yields on some of those securities have plunged to their lowest levels in two decades after credit markets dried up.
Carlyle Capital Chief Executive John Stomber attempted to play down the situation, saying the past few days had created a market environment that did not fairly value the fund's assets.
"Unfortunately, this disconnect has created instability and variability in our repo financing arrangements," Stomber said in a statement. "Management is actively working with the company's repo counter-parties to develop more stable financing terms."
But the stock, which listed on the Euronext Amsterdam in July, dropped 58% to $5, giving the company a market capitalization of $255.4 million.
The fund originally sold shares at $19 each.
The company said that seven banks that help finance its portfolio of Freddie Mac and Fannie Mae securities through short-term repurchase agreements, known as repos, had asked for an additional $37 million on Wednesday to keep funding in place.
It met the requirements of three of those, who it said had indicated "a willingness to work with the company during these tumultuous times."
It gave no detail on the banks in question or which one had issued the default notice.
Carlyle Capital as recently as Monday had reassured investors on its funding lines, saying it had $2.4 billion in undrawn repo lines and that it had increased a credit facility provided by the parent by 50%, to $150 million.