(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