Monday, July 18, 2016

Carlyle Capital Trial Underway

Carlyle Group co-founder Bill Conway testified in Guernsey in defense of the failed Carlyle Capital Corporation (CCC), a highly leveraged mortgage backed security investment.  CCC liquidators brought a $1 billion suit against parent Carlyle Group.  WSJ reported on Conway's responses under oath:

On CCC’s use of 30 times or more borrowed money: “It was highly leveraged but I didn’t think the risks were going to happen, the risks that led to the downfall of CCC, the systemic market collapse.” 

On 2007’s credit crunch: “I certainly did not think it was something that was going to lead to the end of Lehman Brothers, the end of Bear Stearns, the end of Wachovia, the end of Merrill Lynch as companies.”
Conway admitted CCC was a canary in the coal mine of financial crisis. The WSJ piece also has a series of e-mails between Carlyle chiefs as CCC approached implosion.  Creditors no longer trusted Carlyle to make good on its bets.

Corporate debt, much of it private equity sponsored, ballooned since the financial crisis.  Just like CCC got overrun in 2007 private equity loans could be at risk.

Carlyle recently sold Brazilian lingerie maker Scalina for a huge discount in order to pay creditors something.  The Carlyle Group is also down $25 billion in assets under management in the last year.  Darkness looms as Carlyle reminds us of their shenanigans during the last financial crisis.