More Leveraged Fallout: Carlyle Capital and The Rising Cost of a Haircut
Carlyle on the rocks, please... Since March 5, lenders have told Carlyle Capital that they consider it "in default under financing agreements."
Carlyle Group, the worlds 2nd largest leveraged buyout firm, owner of Carlyle Capital...
said creditors may force a sale of up to $16 billion of securities unless the two sides reach agreement on debt repayments.
Citibank Analysts: "Unless Carlyle Group provides additional financing,
the fund could be forced into significant asset sales into a weak market or could face bankruptcy."
Caryle Capital's Statement: "Due to recent turmoil in the market for mortgage-backed securities, the company's lenders have significantly reduced the amount
they are willing to lend against the company's portfolio of U.S. government agency AAA-rated residential mortgage-backed securities,"
Dry Sack or Margin Call Central?... Since Feb. 15, at least six hedge funds,
totaling more than $5.4 billion, have been forced to liquidate or sell holdings because their lenders
-- staggered by almost $190 billion of asset writedowns and credit losses caused by the collapse of the subprime-mortgage market --
raised borrowing rates by as much as 10-fold with new claims for extra collateral.
The Rising Cost of A Haircut...
Banks usually limit their risk on repos by lending less than the value of the securities used as collateral.
In early 2007 you could borrow $95 on $100 worth of AAA rated jumbo prime mortgages.
Meaning the bank took a $5, or 5% so-called haircut. By last month, the amount required had risen to as much as 30%.
On AAA asset-backed securities, banks are demanding a 15% haircut, up from 3% last summer. Corporate bond haircuts have gone to 10% from 5%.
At least one bank has raised Treasury haircuts, which range from 0.25% to 3%.
And the worst of the best... AAA rated residential mortgage backed securities, banks have raised haircuts 10-fold in the past year to 20%.
Odi Lahav, head of the European Alternate Investment Group at Moody's Investors Service:
"It's not a question of prime brokers deciding which firms live and which don't. They're trying to manage their own risk."
Christopher Cruden, CEO of Insch Capital Management:
"If you're going to dance with the devil, there comes a time when your toes are going to be stepped on.".
Carlyle Group, the worlds 2nd largest leveraged buyout firm, owner of Carlyle Capital...
said creditors may force a sale of up to $16 billion of securities unless the two sides reach agreement on debt repayments.
Citibank Analysts: "Unless Carlyle Group provides additional financing,
the fund could be forced into significant asset sales into a weak market or could face bankruptcy."
Caryle Capital's Statement: "Due to recent turmoil in the market for mortgage-backed securities, the company's lenders have significantly reduced the amount
they are willing to lend against the company's portfolio of U.S. government agency AAA-rated residential mortgage-backed securities,"
Dry Sack or Margin Call Central?... Since Feb. 15, at least six hedge funds,
totaling more than $5.4 billion, have been forced to liquidate or sell holdings because their lenders
-- staggered by almost $190 billion of asset writedowns and credit losses caused by the collapse of the subprime-mortgage market --
raised borrowing rates by as much as 10-fold with new claims for extra collateral.
The Rising Cost of A Haircut...
Banks usually limit their risk on repos by lending less than the value of the securities used as collateral.
In early 2007 you could borrow $95 on $100 worth of AAA rated jumbo prime mortgages.
Meaning the bank took a $5, or 5% so-called haircut. By last month, the amount required had risen to as much as 30%.
On AAA asset-backed securities, banks are demanding a 15% haircut, up from 3% last summer. Corporate bond haircuts have gone to 10% from 5%.
At least one bank has raised Treasury haircuts, which range from 0.25% to 3%.
And the worst of the best... AAA rated residential mortgage backed securities, banks have raised haircuts 10-fold in the past year to 20%.
Odi Lahav, head of the European Alternate Investment Group at Moody's Investors Service:
"It's not a question of prime brokers deciding which firms live and which don't. They're trying to manage their own risk."
Christopher Cruden, CEO of Insch Capital Management:
"If you're going to dance with the devil, there comes a time when your toes are going to be stepped on.".
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