BWICs are Bwack As Funds Resume Dismantling Themselves

In a first for 2009, a $200 million loan BWIC was distributed earlier this week, indicating the deleveraging of hedge funds' credit books is far from over. In late 2008 BWIC lists (Bids Wanted in Competition) were all the rage, as banks and prime brokerages were freezing collateral pools of funds that had gone under or were in the process of doing so, and selling the component holdings one piece at a time to the highest bidder, which would usually be a substantial discount to market price. The mere threat of BWIC was enough to keep loan prices very low since no manager wanted to buy a name outright in the market, as the very next day he or she might be able to pick it off a BWIC firesale. Despite the huge volume of notional marketed in BWIC (according to some estimates over $20 billion of loan in Q4 alone), the bids many agent banks received were so low they decided to keep the loans on their own balance sheets instead of getting even less pennies on the dollar for their collapsed prime brokeree.

Traditionally the names making up BWICs are more arcane and illiquid, and as such rarely move the market much on some of the most liquid loans/bonds, but on occasion you would find a bid list (Highland's Credit Opportunity Fund liquidation would be a great case in point) full of juicy, liquid names.

The list marketed currently is made up of 74 different loans, with the largest notional on offer being Medial Media Holdings 1st Lien Term Loan at roughly $10 million, and some of the other larger issues contained being BioTech Research Labs TL B, US Cable Coast TL B, DR Horton Revolver, Attachmate Corporation TL and Triumph Healthcare 1st Lien TL (by the preponderance of health-related names this was likely a healthcare hybrid hedge fund). Some of the more popular names contained are Tenneco Tranche B1, American Airlines B2, Movie Gallery TL and CIT revolver.

With all claims that the deleveraging of the market may be over, the quantity of BWICs is actually the best indicator of whether or not this is true. If the market today is any indication stay tuned for a lot more BWICs hitting the tape soon.