Carlyle Capital Corporation (CCC), a unit of the US private equity giant which ran into trouble last year and needed emergency funding, said today it failed to meet margin calls and could default on other loans.

CCC, a Dutch-listed affiliate of The Carlyle Group, said it received margin calls of more than $37 million from seven banks on Wednesday and was unable to meet the demands for extra collateral to cover its market positions for four of them.

As a reasult, it said it received one default notice and expected at least one more. Its banks include Bank of America, Bear Stearns, BNP Paribas, Calyon, Citigroup, Credit Suisse, Deutsche Bank and ING.

The fund, which floated in Amsterdam last July, invests in long-term asset-backed securities, such as triple A rated mortgages. When it was founded, the fund raised $670 million of equity which it geared up 32 times to finance a $21.7 billion portfolio of asset-backed securities.

Although the assets are highly rated, their value has been hit hard by reverberations from the sub-prime credit crisis. As the values have fallen, the banks have demanded more collateral as guarantees for their loans.

John Stomber, CCC's president and chief executive said: “The last few days have created a market environment where the... margin prices for our AAA-rated US government agency...securities issued by Fannie Mae and Freddie Mac are not representative of the underlying recoverable value of these securities".

"Unfortunately, this disconnect has created instability and variability in our repo financing arrangements. Management is actively working with the company’s repo counterparties to develop more stable financing terms”.

Carlyle’s founders - the high profile David Rubenstein and his colleagues Daniel D'Aniello and William Conway - have already twice bailed out the fund to the tune of $200 million from their own pockets. It is understood $100 million of that total was paid back in November and since then CCC has been forced to borrow another $50 milllion, leaving Carlyle's outstanding exposure as a $150 million revolving credit line.

CCC has also been forced into a firesale of its assets in a bid to raise cash to meet further margin calls. But, as it sells assets, the price of its existing assets falls as nervous investors flee the sector. In a statement,

CCC's flotation was scaled back and delayed because of choppy credit markets. At the end of June 2007, Carlyle priced shares at $19 each to raise $300 million, having initially sought $415 million from shares sold at $20.

Last month, CCC had a $21.7 billion investment portfolio of AAA-rated US mortgage-backed securities issued by Fannie Mae and Freddie Mac, the two largest American mortgage finance companies.

Earlier this week, Carlyle said it poached Olivier Sarkozy, half-brother of French President Nicolas Sarkozy, from investment bank UBS as it seeks to “capitalise on the dislocation in the financial services sector”.

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