The Wall Street Journal [subscription required] reports that banks lent a mind-boggling $32 for every dollar of equity in Carlyle Capital, the credit defaulting mortgage investment joint venture between Carlyle Group and Thornburg Mortgage (NYSE: TMA). This demonstrates that while leverage can magnify returns in an up-market, it can also magnify losses in a down one.

The cause for both bankruptcies was that banks made a margin call -- a request for some of their loan to be repaid immediately -- and neither party was willing to cough it up. In the case of Thornburg's $28 million cash call, it is a bit less surprising that it could not come up with the money. But Carlyle Capital's parent is an $80 billion private equity firm -- so it's interesting that it chose not to fork over the $37 million the banks wanted.

What's going on here is that our capital markets depend on the health of Wall Street banks. The banks are running out of capital because the value of their assets -- particularly asset-backed securities (ABSs) such as Collateralized Debt Obligations (CDOs) -- are plummeting. As those assets drop in value, banks need to write down those values and raise capital to maintain their capital ratios -- for example, Citigroup's (NYSE: C) target ratio of capital to assets -- its so-called Tier One Capital Ratio -- is 7.5%.

MAJOR PAPERS:

• As chairman and CEO of Countrywide Financial Corporation (NYSE: CFC), Angelo Mozilo refused to take pay cuts, according to a report by a House committee, and reported by the Wall Street Journal. The focus of a meeting today with the House Committee on Oversight and Government Reform on executive compensation at companies involved in the subprime fiasco will be on Mozilo, who was paid about $250M between 1998 and 2007, plus $406M from his sale of Countrywide shares.
• The Wall Street Journal also reported that Corning Incorporated (NYSE: GLW) is looking to sell crystal business Steuben Glass, a unit that has lost $30M over the last five years. If Corning cannot find a buyer for the unit, executives said they will consider other options, including closing Steuben.

OTHER PAPERS:

• After failing to meet repayment requests, the UK Times reported that Carlyle Capital Corp Limited (OTC: CARYF), the Dutch-listed affiliate of U.S. private-equity firm Carlyle Group, held emergency restructuring talks with its banks Thursday evening. CCC disclosed that it had received one default notice after receiving margin calls for over $37M from banks since Wednesday but was "unable to meet the demands" of several. The firm expects "at least one" more default notice.

WEB SITES:

• Despite shedding several units, Vikram Pandit, Citigroup Incorporated's (NYSE: C) CEO, denied rumors that the bank could put its unit in South Korea up for sale. According to sources, Pandit, currently reviewing operations in an effort to boost earnings and cut costs, said "absolutely no" when directly asked about a divestiture, Reuters reported.

Since the early 1970s, the Apollo Group (NASDAQ: APOL) has transformed the private education business. The company not only has a broad network of campuses called the University of Phoenix, but also a thriving online education system.

As seen with yesterday's fiscal Q1 results, Apollo is continuing to grow at a nice clip. Net income increased 23% to $139.9 million, or $0.83 per share. Revenues were up 17% to $780.7 million.

Apollo got a boost from enrollments, which increased 11% to 325,000. But the company has also made important strides with student retention as well as the quality of the curriculum.

True, there are worries about the credit crunch. Just take a look at school loan provider Sallie Mae (NYSE: SLM), which plans to pull back somewhat. Yet, Apollo has anticipated some of this and has tried to reduce its reliance on private student lending.

This week, the cofounder of the Carlyle Group, David Rubenstein, paid $21.3 million for a copy of the Magna Carta. In an offbeat way, is this a sign of optimism for the private equity space?

Well, today Rubenstein gave an interview with CNBC. Basically, he thinks there are some compelling investment opportunities – especially in energy, healthcare, and financial services. What's more, he's bullish on emerging markets. He's not only excited about China but even Africa and the Middle East. For example, in Africa, Rubenstein thinks there are opportunities for mining/minerals, financial services, and telecom.

Although, things may be remain somewhat slow in terms of deal activity, at least in the US, Rubenstein thinks sellers may be in denial on valuations. Also, to get deals done, private equity funds will probably need to pony up more equity. But, with the huge amounts of capital in these funds, that shouldn't be hard to do.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

MAJOR PAPERS:

• The Wall Street Journal reported that the Fed may act soon to confront banks' unwillingness to lend to each other.
• After several months of delays, The Boeing Company (NYSE: BA) said its 787 Dreamliner is on track to fly its first aircraft in the first quarter of next year and deliver the plane to its first customer by the end of 2008. Full-rate aircraft production is slated for 2008 and 2009, the Wall Street Journal reported.

OTHER PAPERS:

• The Seattle Times reported that Cellcyte Genetics Corp (OTC: CCYG) has risen to a value of over $440M, a figure which the CEO says is an "amazing" show of investor confidence in the company's stem cell technology. The B.C. Securities Commission has cautioned that this may be a pump-and-dump stock scheme, where promoters take a large position in an inexpensive stock, hype it, and unload it onto unsuspecting investors.
• According to the UK Times, BAE Systems (OTC: BAESY) is looking to outbid rivals in what could be an A$1B deal for Australia's second-largest defense company, Tenix. Other bidders may include L-3, Carlyle Group and Leighton Holdings Ltd (OTC: LGTHF).

A number of news reports in the last few weeks have drawn attention to the involvement of private equity firms in health care companies, particularly nursing homes. Now comes news that Congress wants to look into the situation. Senator Hillary Clinton of New York, a Democrat, and Republican Senator Charles Grassley of Iowa have asked Congress to investigate the situation.

The source of the growing concern about care at for-profit nursing homes owned by private equity firms is an article in The New York Times published in September. The title of the article sums up the situation pretty well: "At Many Homes, More Profit and Less Nursing." It seems that when private equity gets involved in providing nursing care, more money goes toward making investors comfortable and less toward the elderly folks who actually live in the facilities.

I doubt that too many readers will find this claim surprising. Private equity funds search for return on investment. If a couple thousand old people live a little less comfortably, or die a little sooner -- well, too bad. Profits must be made, and the higher the better. What may come as a surprise, though, is the size of this market. For example, the Carlyle Group plans to buy Manor Care Inc. (NYSE: HCR), the largest U.S. nursing home owner, for $4.9 billion. That's an awful lot of bedpans.

And it turns out that private equity firms are ideally suited to run these operations -- assuming that what you want is the highest possible profit rather than, say, excellent care for the elderly. Private equity excels at wringing out costs, and so has no trouble firing many of those expensive nurses who take care of the patients. Private equity also loves to create debt and ownership structures so complex that no one can figure out who actually owns a business -- thus shielding the owners from lawsuits. And the nursing home business deals with a powerless group of consumers, many of whom are subsidized by government payments. No wonder private equity firms are jumping into the sector! Just hope that your elderly relatives stay healthy and strong.

The New York Times [registration] reports that the Carlyle Group and the NASDAQ Stock Market, Inc. (NASDAQ: NDAQ) are selling out to one of the countries -- United Arab Emirates -- from which two 9/11 hijackers -- Marwan al-Shehhi and Fayez Benihammad -- hailed.

Specifically, the government of Abu Dhabi, United Arab Emirates' capital, will buy 20% of Carlyle Group, valuing it at $20 billion. While yesterday, NASDAQ announced that is was selling 19.9% of itself to Borse Dubai, the Dubai government-controlled exchange.

But not a peep of protest is emerging from the White House. And why should it protest? This is the decade where it's better to be a barrel of oil -- or a country that sits on oil -- than to be an American. After all, the price of oil is up 242% to a record $82 a barrel since its January 2001 price of $24 a barrel. Meanwhile, since 2001, the median family income adjusted for inflation has stagnated. Bernanke's bailout has slashed the dollar to record low levels against the Euro -- and since oil is traded in dollars -- that means people who drive will be paying more than ever.

At the Private Equity Analyst Conference in New York yesterday, the co-founder of the Carlyle Group, David Rubenstein, has continued to be oblique on the question of going public. Hey, in light of the Blackstone (NYSE: BX) debacle, I can understand why.

Well, according to the Wall Street Journal [a paid service], Carlyle is taking another approach (at least for now). That is, the firm has snagged a $1.35 billion private investment from Mubadala Development Company, which is part of Abu Dhabi. Essentially, this places a hefty $20 billion valuation on Carlyle.

It's an important move. Carlyle wants to have a permanent source of capital, which can help with minority investment opportunities and even buying up other private equity firms.

Plus, in order to keep up the growth momentum, Carlyle needs to expand into new markets, such as the Middle East.

The investment points out something else: Abu Dhabi is quite bullish on the global financial markets. Besides its Carlyle investment, the government (which controls the United Arab Emirates) is also taking a large position in the Nasdaq as well as the London Stock Exchange.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

MAJOR PAPERS:

• A contract awarded to American Superconductor Corporation (NASDAQ: AMSC) by the Department of Homeland Security wasn't put out for bid as is usually required, and is being investigated by the House's Committee on Energy and Commerce, as well as the Subcommittee on Oversight and Investigations, reported the Wall Street Journal (subscription required).
  
• The Wall Street Journal reported that private equity firm The Carlyle Group has been forced to lend a second $100M to mortgage fund Carlyle Capital, which has cancelled its dividend and is selling assets to meet margin calls, just two months after listing on the Euronext Amsterdam.
• U.S. consumers are defaulting on credit-card payments at a significantly higher rate than last year, raising the prospect that the problems in subprime mortgages will spread to other types of consumer debt, reported the Financial Times (subscription required).
  
• Barclays plc (NYSE: BCS) set up a $3B structured finance vehicle on behalf of German bank Sachsen less than three months before Sachsen's recent collapse, reported the Financial Times, which added that the finance vehicle set up by Barclays for the German bank had most of its assets invested in securities backed by prime and subprime U.S. mortgages.

OTHER PAPERS:

• According to regulatory filings, State Street Corporation (NYSE: STT) has the most exposure to asset-backed commercial paper among European and American banks, the U.K. Times reported.

It looks like Home Depot's sale of its wholesale division will go through. But, to add insult to injury, Home Depot (NYSE: HD) had to drop the price of Home Depot Supply from $10.3 billion to about $8.5 billion to keep private equity buyers in the deal. Then it had to guarantee $1 billion of the debt being taken on to buy the operation because large banks recoiled at the idea of loaning money to a company linked to the housing business.

Bain Capital, Carlyle Group, and Clayton, Dubilier & Rice had made the original offer. But, as the mortgage industry began to implode and home sales dropped, large banks wanted to walk away from the deal. All of the parties had a reason to keep the buy-out alive. As The Wall Street Journal writes: "Both sides had agreed that if the financing for HD Supply fell apart, it would spook debt markets further, potentially casting more doubt on a series of higher-profile transactions."

The big cut in price raises the question of whether or not Home Depot shareholders are getting a good deal. At $10.3 billion, the purchase price was at least in line with the value that the market gives Home Depot. The world's largest home supply company planned to use the money to buy back shares and perhaps pay down some of its $11 billion in debt.

But, at some point, the price is simply too poor for Home Depot shareholders to take. And, that is what may have happened.

Douglas A. McIntyre is a partner at 24/7 Wall St.

It seems inevitable that private equity firm, Carlyle Group, is going to file for an IPO. No doubt, there has been a lot a chatter about it.

Well, according to the FT.com [a paid service], Carlyle has a new CFO Peter Nachtwey. Obviously, this is a critical hire for an IPO (especially in light of the extremely complex issues of alternative investment management companies).

Nachtwey certainly has a sterling resume. He has served as a partner at Deloitte & Touche and even was involved in the audit of the Blackstone Group (NYSE: BX) stock offering.

Although, Carlyle is currently in the process of raising a $15 billion fund. So, in the meantime, it's likely that the firm will focus on that before it makes a filing for an IPO.

But, with $71.4 billion in assets under management, Carlyle should have no problem pulling off an IPO. After all, despite the fall in Blackstone's shares, the valuation is still not cheap.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Not that long ago, KKR's Henry Kravis said that private equity had moved into the "golden age."

Well, things have lost some sparkle lately.

First of all, it's getting tougher to raise money in the debt markets. What's more, with the surging stock markets, the valuations are making it difficult to get better returns. Oh, and of course, Capitol Hill is thinking of imposing some taxes on private equity partners.

Hey, just look at the lackluster performance of the shares of the Blackstone Group (NYSE: BX).

So this week, the founding partner at Carlyle, David Rubenstein, gave his opinion on things (this is according to a story in Reuters). Basically, he thinks the golden age of private equity has ended -- and it will get tougher for private equity firms to generate standout returns.

He's not predicting a crash though. After all, there are many investors that want to increase their exposure to private equity. Besides, he thinks top private equity firms will continue to generate better returns than the traditional markets.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Peter Cohan: Debating private equity taxation with The Wall Street Journal
Peter Cohan: Private equity lays a bigger golden egg on Wall Street
Tom Taulli: Private equity cookie monster gets fatter

It was back in 1929 that Norman Alexander started Sequa Corp. (NYSE: SQA.A), a major industrial conglomerate (with operations in aerospace, automotive, metal coating, specialty chemicals and industrial machinery). However, late last year, he died. And that is often something that leads to the sale of a company.

That happened today, when Sequa agreed to a $2.7 billion from the Carlyle Group.

Sequa is definitely a solid company. In the most recent quarter, revenues were $526.7 million and net income was $11.3 million.

As for Carlyle, it has extensive experience in aerospace and automotive. For example, the company recently purchased the Allison Transmission segment from General Motors (NYSE: GM). Thus, the deal should be a nice fit for Carlyle.

It's also a nice pick-up for Sequa shareholders. On the news of the deal, the stock price surged $59.56 to close at $173.41.

If you want to see more recent M&A deals, click here.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

MAJOR PAPERS:

• A small group of lawyers who hold overlapping roles in a number of trusts held by by the Bancroft family that controls Dow Jones and Company Inc (NYSE: DJ), may have final say on whether or not to sell the company to Rupert Murdoch's News Corporation (NYSE: NWS), according to the Wall Street Journal.
• The Wall Street Journal reported that Bear Stearns Companies Inc (NYSE: BSC) has told investors in its two hedge funds, the Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage fund, that it will know the total hedge fund losses on about July 16.
• The Financial Times reported that Kraft Foods Inc (NYSE: KFT) is in talks with Danone (NYSE: DA) to acquire its biscuit and cereal products unit.
  

OTHER PAPERS:

• The U.K. Times reported that Virgin Media Inc (NASDAQ: VMED) has been approached informally by a potential buyer with an $8B takeover offer, according to people familiar with the matter.
• The New York Times also reported on Virgin Media's possible takeover, saying the potential buyer was Carlyle Group, and the price tag was about $20B.

Carlyle Group is talking to British cable operator Virgin Media (NASDAQ: VMED) about taking over the company for about $20 billion. Blackstone (NYSE:BX) and KKR talked to the firm about a buy-out for $15 billion late last year, so the price is going up.

Virgin's market cap is only $8 billion, so any purchase would include the assumption of substantial debt.

The real question about Virgin is why anyone would want to own it. The company competes with a robust telecommunications industry which includes BT (NYSE: BT) and Vodafone (NYSE: VOD). Rupert Murdoch's British Sky Broadcasting (NYSE: BSY) delivers video services to large number of homes in the UK. Virgin hardly has an easy time competing. Murdoch's operation is taking subscribers from the cable company, and Virgin now routinely loses money.

Why would anyone want to pay a premium for it?

Douglas A. McIntyre is a partner at 24/7 Wall st.