Sprint, failed hedge fund share chairman

The multibillion-dollar collapse of Carlyle Capital Corp. has added another item to Sprint Nextel Corp.'s growing list of distractions.

James H. Hance Jr., chairman of Carlyle Capital, also is chairman of Sprint Nextel Corp.

The former bank executive took the non-executive chairman's job at Sprint in October when the struggling wireless company pushed out Gary Forsee as chairman and chief executive officer.

Now, Carlyle Capital faces liquidation after lenders moved to seize its assets. The company said this week that it had defaulted on about $16.6 billion in debt, much of it tied to beaten-down mortgage-backed securities, despite a flurry of last-minute refinancing negotiations.

More defaults are expected.

Both Carlyle Capital and Sprint were going through particularly wrenching periods of transition last fall.

Sprint was looking for a permanent leader following the departure of Forsee. Carlyle, meanwhile, was scrambling to find solid footing in a crumbling mortgage securities market.

Hance declined to comment Thursday.

A Sprint spokesman said, though, that myriad responsibilities did not hinder Hance's performance as a key leader of the company.

"Jim Hance is available, as are all our directors, to do everything that is needed of him in his role on the board," said James Fisher, a Sprint spokesman.

In addition to serving as Sprint's chairman, Hance led the board's audit committee and served on the transition committee.

"He was very active during that period," Fisher said.

Fisher declined to characterize the specific activities of Hance or any other board members during the time between the departure of Forsee and the arrival of Dan Hesse, a wireless industry veteran, as Sprint's new CEO. Paul Saleh served as interim CEO until Hesse took the helm of Sprint in December.

"Dan Hesse is the one who is actually running the company on a day-to-day basis," Fisher said.

Carlyle Capital is a fund that specialized in residential mortgage-backed securities. It used an initial stake of hundreds of millions to borrow billions to make the mortgage investments.

The Carlyle Group, a private equity giant managing more than $81 billion, set up the Carlyle Capital mortgage venture in 2006.

The larger firm specializes in buyout, venture capital, real estate and leveraged finance investments in a wide range of industries from aerospace to energy to telecommunications.

Its portfolio includes investments in such companies as R.H. Donnelley Corp. and The Nielsen Co. It also has backed Kansas City area companies, including AMC Entertainment Inc. and eScreen Inc., an Overland Park company with an automated rapid drug test for employers.

On Thursday, it was Carlyle Capital that roiled financial markets and, to some extent, Sprint.

The Dow Jones industrial average initially plunged 235 points as some investors worried that Carlyle's woes signaled another wave of write-downs on battered mortgage-backed securities. The market recovered and ended in positive territory by the end of the day, however, after Standard & Poor's said that the tsunami of write-downs by financial services companies may be receding.

Hance, who previously was vice chairman and a board member of Bank of America Corp., joined Sprint's board in February 2005.

At the time Hance became Sprint's chairman last fall, he also took the position of lead independent director. Irvine O. Hockaday Jr., former CEO of Kansas City's Hallmark Cards Inc., remained on the Sprint board, but gave up his status as lead independent director.

The search for a permanent CEO extended for at least two months after Forsee stepped down.

Hance kept the chairman's position when Hesse took charge as Sprint's CEO.

Hance serves as a senior adviser to the Carlyle Group and chairman of Carlyle Capital.

Carlyle Group leaders issued a statement Thursday saying they "worked exhaustively" to assist in the Carlyle Capital refinancing negotiations. They also cited extraordinary measures that included providing $150 million to address the liquidity crisis.

In addition to serving on Sprint's board, Hance is on the board of Cousins Properties Inc., Duke Energy Corp. and Rayonier Corp.

Sprint shares closed Thursday at $5.99, down 23 cents. The company has lost more than half its market value since the first of the year.

Presidential working group wants stronger regulation of mortgage lenders. — Story, C2

To reach Jason Gertzen, call 816-234-4899 or send e-mail to jgertzen@kcstar.com.

To see more of The Kansas City Star, or to subscribe to the newspaper, go to http://www.kansascity.com.

Distributed by McClatchy-Tribune Information Services.