End of the Road for Carlyle Capital?
Carlyle Capital Corp., a listed mortgage bond fund that has seen its investments in agency-backed mortgage securities sour, said Thursday that it could not reach an agreement with its lenders over more than $400 million in margin calls. The failed discussions likely signal the end of the road for the highly-leveraged fund, which found itself caught when prices of Fannie Mae and Freddie Mac-backed MBS tanked starting last week. In a press statement, the company said that it "expects that its lenders will promptly take possession of substantially all" of the company's remaining assets." Carlyle had first warned of problems last week. Carlyle Capital's portfolio consists entirely of U.S. government agency AAA-rated residential mortgage-backed securities -- but it had leveraged $670 million in equity to finance its $21.7 billion portfolio, it said. That high leverage left the fund exposed, and likely fatally so, when spreads on agency MBS reached their highest levels in two decades earlier last week. "Negotiations deteriorated late on March 12 when, among other things, the pricing service utilized by certain lenders reported a drop in the value of the RMBS collateral that is expected to result in additional margin calls tomorrow of approximately $97.5 million," the fund said. The company said lenders' terms for lending have changed "substantially," making successful refinancing impossible. The failure at Carlyle could also signal further pressure for an already-stressed RMBS market, according to sources that spoke with Housing Wire Thursday morning. "We're talking about lenders siezing more than $20 billion in assets, which are probably going to be sold in a market where there are already more sellers than buyers," said one source, who asked not to be named. "Unless the Fed earmarked 10 percent of its liquidity plan for Carlyle's lenders, which is doubtful, this failure is likely to further widen some already wide spreads." The Federal Reserve announced plans to pump $200 billion into the financial markets earlier this week, lending against agency MBS, among other structured securities. The plan led stocks on a historic one-day rally, but enthusiasm appears to have dampened since that time -- the Dow Jones Industrial Average was down sharply to open trading on Thursday, off 1.57 percent in morning trading.