Carlyle Capital fund possibly near collapse

NEW YORK -- A mortgage-backed investment fund created by the Carlyle Group faltered near collapse Thursday, in what analysts saw as a sign more bad investments need to be cleared out before markets can begin righting themselves.

Shares of Carlyle Capital plummeted nearly 90 percent and rattled stock markets around the globe after the fund said late Wednesday it expected creditors to seize all of its remaining assets -- investment-grade mortgage-backed securities -- because negotiations to prevent liquidation had failed.

"Someone somewhere has got to fail and this is it," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC. "I think there comes a point when you need to see some of this stuff get flushed out."

The Carlyle Group, one the world's biggest private equity groups, said in a statement it had taken "extraordinary measures" and worked "exhaustively" to get financing for Carlyle Capital, but talks had ended because the terms of the proposed debt had become too expensive.

Asked whether the fund would simply shut down, spokeswoman Emma Thorpe said: "We're evaluating options for the fund." She declined to elaborate.

Carlyle Capital said it has defaulted on about $16.6 billion of its debt as of Wednesday, and the rest is expected to go into default soon. About $5.7 billion of the defaulted debt has been sold, the Carlyle Group said Thursday. Thorpe said she couldn't say what has been done with the rest.