Carlyle Capital: Collateral Damage

Lenders are likely to take possession of Carlyle's remaining assets after it was unable to reach a mutually beneficial agreement to stabilize its financing.

The Beeb is not normally my first stop for financial commentary, but Robert Peston has an interesting take on the Carlyle fund and the Fed plan to save the world [again…]:

Well, the point of Tuesday’s dramatic $200bn intervention by the Federal Reserve in mortgage-backed markets was to stabilize the price of US government agency AAA-rated residential mortgage-backed securities and – by implication – to encourage the big banks NOT to seize assets in the way they’ve been doing at Carlyle.

Right now, it’s not clear that the Fed’s medicine has worked.

In fact, it’s arguable that the banks’ seizure of Carlyle’s $20bn-odd in assets has actually been encouraged by the Fed’s mortgages-for-Treasuries offer. Because the Fed’s new lending emergency lending facility allows the banks to swap mortgage-backed debt for Treasury Bills in a way that Carlyle could not do.

So it would be rational for the banks to take Carlyle’s assets and exchange them for top-quality, liquid US government bonds, rather than leave loans in place to a business, Carlyle, whose assets remained highly illiquid.

If that’s the case, there will be some very scared people in hedge-fund land today. Hedge funds that have borrowed from banks against the security of mortgage-backed debt could be about to see their assets sucked into the banking system and their businesses vanish.

It’s a process known as de-leveraging the global financial economy, yet another manifestation of the puncturing of the debt bubble.

Collateral damage. It makes perfect sense.

Sources:
Carlyle Capital says unable reach deal with lenders
Carlyle Capital Lenders to Seize Assets ‘Promptly’
The Fed and Carlyle
CCC to D

Comments

[Krakatoa]

Game Over Carlyle..

[Jack Yetiv]

I have a question based my knowledge in the real estate business, and I don't know why legal principles would work differently in lending.

Say I'm Carlyle, and I want to borrow $80 million. I post $100 million in AAA-rated agency paper with a broker dealer, who lends me the $80 million, leaving me with $20 million in "equity" in the deal. If I am forced to fire-sale the $100 million in collateral, maybe all I get is $80 million, and I am wiped out ($80 million goes to broker-dealer, none to me).

But let's say the broker dealer presents the $100 million in AAA agency paper to the Fed under the new TSLF and gets $100 million. In a real estate foreclosure, a lender can never retain MORE than it is owed. If the foreclosure sale yields proceeds greater than the debt, the excess money collected GOES BACK TO THE BORROWER.

How does this work with Carlyle?

Jack Yetiv

[tga0246]

Please explain the degree of leverage at carlyle like 20 to one or whatever. Please explain any if any relationship to the Bush family company Carlyle group

[sammyg123]

HERE WE GO AGAIN. HERE COME THE BUSH BASHING BABIES. THIS IS A FINANCIAL WEBSITE. GO TO MOVEON.ORG FOR YOUR POLITICS. SILLY LIBERALS, FINANCE IS FOR CAPITALISTS. TGAL0246, GET A LIFE.

[moorele]

Money and politics often go together. The Bush family has much of their net worth in Carlyle.

agonist.org/numerian/2...