Carlyle Capital, the bond fund affiliated with private-equity firm Carlyle Group, is on the verge of collapse after failing to agree a new financing deal with lenders. Late today, the fund said that it expects lenders will soon take possession of "substantially all" its remaining assets after it was unable to meet surging margin calls on its portfolio of residential-mortgage-backed securities. Shares of Carlyle Capital were all but wiped out, tumbling 98% to 29 cents from $12. So far, Carlyle Capital said it's defaulted on $16.6 billion of its debt, and its remaining borrowing is expected to go into default soon. Negotiations with lenders effectively ended when the pricing service used by certain lenders reported another drop in the value of MBSs. That was expected to trigger another $97.5 million of margin calls, on top of the roughly $400 million of demands that Carlyle Capital received last week. Margin calls have soared since the end of February as credit markets have worsened.
At the end of December, the fund had total equity of about $670 million and had used short-term loans, or repurchase agreements, to fund an investment portfolio of close to $22 billion. (That's leverage of 33x. There's the cause of the collapse right there.)
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