This Is Guernsey

By Tom Edwards

Advocates Mark Helyar and Christopher Anderson, of Bedell Cristin Guernsey.

A TEAM of Guernsey lawyers has been appointed to liquidate a stricken multi-billion-pound investment fund with links to ex-US president George Bush Snr and former prime minister John Major.

Advocates Mark Helyar and Christopher Anderson, of Bedell Cristin Guernsey, are advising on the winding-up of Carlyle Capital Corporation, an offshoot of the Carlyle Group – one of the biggest private equity firms in the world.

The Guernsey-based hedge fund collapsed a couple of weeks ago with $21bn of debt due to the credit crunch. Managing partner Advocate Helyar said: ‘Our team is working closely and intensively with the liquidators and counsel in the island, London, New York and Holland, together with the regulatory and listing authorities, to facilitate the orderly liquidation of CCC’s remaining assets.’

Royal Court applications last week led to the appointment of four Begbies Traynor insolvency and corporate recovery specialists to act on behalf of the stricken fund, which is listed on the Euronext Amsterdam exchange.

Some experts have called the collapse the most damaging to hit the markets since the demise of Northern Rock.

Set up in 2006, CCC is incorporated in Guernsey and last week was reported to be unable to meet lenders’ demands for money.

Talks between the company and its bank allegedly fell apart and shares in the group immediately fell by 70%.

CCC reportedly raised less than $700m. from investors, but expanded the fund with massive borrowings to buy mortgage securities.

Unlike the sub-prime ones, which have featured in the recent American housing slump, these were triple-A rated.

But even their value has fallen sharply in the credit crisis, putting CCC in default with its lenders.

Dawnay Day Milroy director Paul Meader said Carlye Capital Corporation had been caught out by a combination of two things.

‘One is using extreme amounts of leverage and the other is a recent tendency by financial markets to throw out the baby with the bath water.

‘Reportedly CCC borrowed $31 for each $1 of capital, which is pretty extraordinary leverage in most people’s books and gave absolutely no margin for error.

‘Then, even though they owned high-quality mortgage securities, the lack of liquidity and confidence in the credit markets has seen everyone running for cover and the prices of all mortgage-backed securities have fallen, occasionally sharply.’

In many ways CCC’s activities were the ultimate expression of the risk-taking that existed early in 2007, added Mr Meader.

‘They were not alone then and they have not been alone in failing, witness the need for the takeover of Bear Sterns in the US, Northern Rock in the UK and the collapse of some hedge funds.

‘These failures are uncomfortable but represent a purging of excesses in the financial system.  That purge will create the foundations for the eventual recovery in the financial markets.’