Mortgage-bond fund sells assets after margin calls

LONDON -- Lenders to Carlyle Capital Corp. have begun to liquidate securities held in its $21.7 billion portfolio and the fund said Friday it was considering "all available options."

The selloffs come as lenders demand additional collateral to back their loans to Carlyle and they portend an ominous development one day after the fund was served with default notices, convulsing already skittish financial markets.

Shares in the fund, a listed mortgage-bond fund managed by private equity firm the Carlyle Group, were suspended Friday. The stock closed down Thursday almost 60% at $5 on Euronext Amsterdam.

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

The fund said it was unable to meet margin calls from four banks Thursday, raising fears that its entire portfolio could be unwound. Securities have dropped sharply in recent weeks as banks pull back on their lending, forcing investment vehicles and funds like Carlyle to dump assets.

In Friday's statement, Carlyle Capital said it had received "substantial additional margin calls and additional default notices from its lenders." It also said that lenders were selling off securities held as collateral.

Carlyle Group has a $150 million credit facility with Carlyle Capital.

"But we don't expect it to have any material impact" on the parent company, said Emma Thorpe, director of European communications.

Risk premiums on residential mortgage-backed securities widened Thursday, stocks fell, and U.S. Treasurys rallied as investors sought safety.

Carlyle Capital said Friday that it is in discussions with its lenders about its financing situation, but warned shareholders that the additional margin calls and increased collateral requirements to keep funding in place could quickly deplete its liquidity and impair its capital.

Carlyle Capital leverages its $670 million equity 32 times to finance a $21.7 billion portfolio of residential mortgage-backed securities issued by U.S. housing agencies Freddie Mac and Fannie Mae.