Carlyle Group faces default on $21.7-billion sub prime assets

07 March 2008

Mumbai: Lenders to Carlyle Capital Corporation Ltd, a Dutch-listed affiliate of the US-based Carlyle Group, have begun to liquidate securities held in its $21.7 billion portfolio, in a sign that the subprime mortgage market turmoil has taken its toll on the Carlyle Group, the world's second-biggest leveraged buyout firm by assets.

Carlyle Capital had said earlier it received margin calls totaling more than $37 million on Wednesday and expected at least one more default notice.

Carlyle Capital, which received additional margin calls and default notices from banks that help finance its portfolio of mortgage-backed securities, said it may not be able to meet the increased requirements.

Carlyle Capital said it had received "substantial additional margin calls and additional default notices from its lenders," and that lenders were selling off securities held as collateral.

Carlyle Capital, with an equity base of $670 million, manages to finance a $21.7 billion portfolio of residential mortgage-backed securities issued by US housing agencies Freddie Mac and Fannie Mae by entering into repurchase agreements with banks.

This involve posting the mortgage securities as collateral in exchange for cash and if the value of the security held as collateral falls, the lender will ask for more collateral - a "margin call" - in order to secure the loan. If the borrower does not meet the margin call by putting up more collateral, the lender may sell the security.