An affiliate of U.S.-based buyout firm Carlyle Group has defaulted on about $16.6 billion of debt and expects its lenders to seize remaining assets as the global credit crunch tightens around leveraged investors.
Carlyle Capital, a fund listed in Amsterdam, said in New York on Wednesday that negotiations with lenders deteriorated late in the day after a drop in the value of its mortgage investments which it saidwould result in margin calls of $97.5 million on top of the $400 million it was already facing.
A "successful refinancing is not possible," Carlyle Capital said, after trying for the past week to work out a deal with lenders to stave off bankruptcy.
Bund futures in Europe rose after the news back to levels they traded at before the U.S. Federal Reserve and other central banks coordinated on Tuesday to inject liquidity into credit markets. The dollar also fell.
The credit crunch, triggered last year when subprime mortgages made to risky U.S. borrowers went sour, has put increasing pressure on lenders to shore up capital and made it difficult to value collateralized debt, mortgage portfolios and other fixed-income securities -- the investments that Carlyle Capital was set up to invest in.
"The credit angst is back," said Tim Condon, head of Asia research with investment bank ING.
The default by the fund prompted spreads to widen on the iTRAXX Asia ex-Japan investment grade index, and European credit spreads also widened, returning close to record wide levels touched earlier in the week. The news also sent the dollar lower, where it touched 12 year-lows against the yen.