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(Lack Of) Hedge Fund Motivations In Bankruptcy
Eric Fisher discussing the role of hedge funds in bankruptcy. Alas, for Eric and his firm Butzel Long, after the creditor-adverse GM and Chrysler fiascoes, hedge funds (and thus potential clients) will be loathe to touch anything with either a UAW representation or a firm that has any chance of going through the judicial system, after the Second Circuit's and the Supreme Court's recent "equitable" performance in Chrysler. Furthermore, after the NWA precedent where hedge funds have to disclose their cost basis in a bankruptcy, the days of aggressive "pump and dumping" of distressed securities are long gone.
This may be an issue for the Administration to consider as once the irrational credit exuberance deflates, and companies start really keeling over in earnest, you will have a repeat of the same fiasco as you saw in the beginning of the year, when companies with cash hordes such as Nortel would file for Chapter voluntarily as there was no chance they would be able to raise any form of rescue financing at any cost. Do not look for any forward looking caution to emerge any time soon though - for now the market is happy to go up, while nobody is looking (or trading).
Compliments of The Deal
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More periods and fewer commas please.
Man that chrysler/GM cluster fuck screwed up my game.
What are the rules??? Can someone tell me because I still don't know...
I'm making tiny investments in distressed bonds based on theory more than facts (i.e. buying Lehman senior unsecureds at $2.50 sound like a good idea... or is it?)
Companies seeking to go Chapter 11 often will build a cash pot because they get to keep it and most of the dough goes to the pros working the BK (lawyers, consultants and the upper echelon managament. Depending on their degree of scumbagness, companies will build up cash pots by screwing the creditors--say buy clothes from a domestic manufacture on short term deal, take the clothes without paying for them, then sell them out at a big "discount" while screwing the manu threw the BK filing. Great work if you can get it. And lack basic integrity.
Why anyone would touch U.S. corporate debt in this political environment is beyond me. I mean Rahm basically called up senior bondholders and threatened them with IRS audits if they didn't go along with the Executive Branch.
I say get into cash -- not corporate bonds. And physical cash at that, given the evidence shows that the FDIC is insolvent -- so is most of the visible banking system for that matter. There could easily be bank runs / bank 'holidays' over the next 2-3 months unless this problem (undercapitalization / structural insolvency) is addressed.
http://market-ticker.denninger.net/archives/1344-Will-It-All-Come-Tumbli...
The administration is too busy sniffing Blankfein's underpants.
totally ot but:
ask Tiny Tim a question on digg!
http://digg.com/dialogg/Timothy_Geithner_1