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Are Lenders Tightening The Screws?

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The default of the Carlyle Capital (aptly described by Peter Cohan as "the bankrupt mortgage investment joint venture between Carlyle Group and the now-bankrupt Thornburg Mortgage") and the forced liquidation of at least a portion of its portfolio has set off broader fears that lenders are going to be tightening the screws on many customers. As lenders scramble for capital, some bankers believe that they will attempt to accumulate capital by calling in troubled loans and selling off collateral when the payments cannot be made.
Those fears are not unfounded. At least one middle market financial company has surprised some other lenders and investors by its stubborn refusal to work out solution with a troubled borrower. While others describe the borrower as "a good credit," the middle market company has been sticking to its guns by insisting that the borrower's default cannot be remedied and its collateral should be liquidated. Others in the deal believe it is the stubborn lender's own capital needs, rather than the condition of the credit, that is driving it to demand repayment and liquidation.