Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
Los Angeles Times – Derek Anderson and Victor Kubicek, producers of Warner Bros.’ and Sony Pictures’ May release ”Terminator Salvation,” have filed a pair of $30-million lawsuits: One against Santa Barbara hedge fund Pacificor, which lent them money to buy the rights to the science-fiction film series, and another against a former employee of Pacificor who helped arrange the loans.
The suits come as Halcyon Co., which is owned by Anderson and Kubicek, has been attempting to raise money to continue operating, according to several people familiar with the situation. The duo also are developing a fifth ”Terminator” film, two sources said.
If they don’t prevail in the suit or raise enough money to pay back Pacificor, however, they may not get the chance to make another movie. According to the complaints, the hedge fund may end up taking control of the ”Terminator” rights, which served as collateral for its loans.
Private Equity Hub – A group of hedge funds that provided bankruptcy funding to Delphi Corp on Monday won a high-stakes auction to take control of the auto parts supplier, scuttling a rival deal brokered by the Obama administration.
Delphi’s board of directors and GM both offered their support for the proposed deal that would hand the company’s assets over to its debtor-in-possession lenders in exchange for their forgiveness of nearly $3.5 billion in loans.
The result, announced by Delphi late Monday, came after a two-day auction in New York.
Caymen Net News – Hedge funds and financial institutions based in the Cayman Islands have been pulling their money out of Britain as they are hit by the credit crunch, according to figures from the Bank of England. The low-tax regime and limited regulation of the Cayman Islands – with a population of 52,000 – has attracted 80% of the world’s $1.3tn (£790bn) hedge fund industry.
The drop in Cayman Islands’ deposits comes as hedge funds are being forced to return money to investors who have made big losses from the financial crisis. Loans from UK banks to Cayman institutions also fell, but at a lower pace. Outstanding loans from UK banks to Cayman institutions outweighed Cayman deposits in UK banks by $124bn in the first quarter, a sharp increase from $12bn in the last quarter of last year, the data shows.
American Thinker – The credit system has broken down. Banks have cooled on lending (maybe because they are not sure if the Obama administration will force a cram down in the future that would result in their loans being worth much less than they thought?). But the system also relies on hedge funds to purchase loans that banks make and package as securities.
Hedge funds would stand ready to buy these loans from banks, releasing more money that could then be used to make additional loans. Hedge funds-often heavily leveraged-made billions over the years with these types of securities. They often rode a wave of lower interest rates that inflated the value of their holdings. It was relatively easy money (especially if you were sophisticated and large enough to borrow overseas in Japan where interest rates were miniscule).
Fort Worth Business Press – The rescue of the American financial system proposed by Treasury Secretary Timothy Geithner is, in all but name, a gigantic hedge fund. The government would lend vast sums to private investors to enable them to buy loss-ridden assets at discounts from banks with the prospect of making sizable profits. If that’s not a hedge fund, what would be? The hope is that the $14 trillion U.S. banking system would expand lending if it could get rid of many of the lousy securities and loans already on its books.
Almost everyone thinks a healthier banking system is necessary for a sustained economic recovery. Can the Geithner plan work?
CNNMoney.com – General Motors and Chrysler LLC have about a week or less before they find out if they’ll get the additional help they need from taxpayers, creditors and unions to avoid bankruptcy.
What they already know is that any assistance they receive won’t be given happily.
The two companies face a March 31 deadline to win concessions from bondholders and unions in order to prove to the Treasury Department that they can be viable in the long term. Without such a finding, the government can recall the $13.4 billion it has already lent to GM (GM, Fortune 500) and the $4 billion it loaned to Chrysler.
Few expect Treasury to take such a drastic step.Still, it’s clear that the automakers need more than the loans they already have received. Chrysler is on record as saying it needs as much as $5 billion in additional funds by March 31 to avoid being forced into bankruptcy.
Time.com – To stop the economy’s deflationary spiral, President Obama and Treasury Secretary Tim Geithner need to get toxic assets off banks’ balance sheets so the banks can start lending again. With much fanfare and after much delay, Geithner on Monday unveiled the details of the government’s "public-private" collaborative plan to make that happen.
There was a lot at stake. When Geithner rolled out an initial version of the plan Feb. 10, the details were missing, the stock market tanked and his image went with it. To give his plan a chance this time, Geithner had to show private investors they could make money partnering with the government to buy troubled loans, and the complex securities based on them, from the banks.
Bloomberg – Philip Falcone, who runs the $7 billion Harbinger Capital Partners LLC, is starting a hedge fund that draws on his background in distressed securities, even as investors are locked into his biggest fund.
The Credit Distressed Blue Line Fund will buy troubled loans and bonds, and bet against higher-rated debt, the New York-based firm said in a March 16 letter to investors. The firm’s flagship $5 billion Harbinger Capital Partners Fund I limited withdrawals to 65 percent of its assets last year because of private-equity investments, which are harder to sell than publicly traded stocks.
Newsday – A tough-talking President Barack Obama moved yesterday to block the $165 million in bonuses for American International Group executives that prompted a new wave of outrage at corporate America and taxpayer bailouts.
Despite the aggressive approach, it’s unclear whether he can get the payments back. But the White House said it would modify the terms of AIG’s pending $30-billion bailout installment to at least recoup the $165 million the bonuses represent. That wouldn’t rescind the bonuses, just require AIG to account for them differently.
Separately, state Attorney General Andrew Cuomo said he will subpoena the names of AIG officials involved and copies of their employment contracts to determine whether the bonuses are legal, given the firm’s weak finances.
Manhattan-based AIG was saved from insolvency by $170 billion in taxpayer-backed loans – and reported a $61.7-billion loss in the fourth quarter last year. It revealed on the weekend that it used more than $90 billion in its federal aid to pay out banks, some of which had received their own U.S. government bailouts.
Stuff - Wealth managers at Citi are telling their clients to watch for a burst of hedge fund activity in bad assets.
The wealth investor says in its most recent note that the biggest opportunity for hedge funds is probably around the Public-Private Investment Fund, which is part of the huge U.S. plan to stabilise the financial sector.
The idea is that the U.S. government will lend money to investors to buy up toxic assets from banks, thus setting a market price.
Citi notes that the loans are non-recourse ones, which means that any default is limited to the actual cost of whatever collateral is require.
Reuters – General Motors Corp on Thursday said its auditors had raised "substantial doubt" about its ability to survive outside bankruptcy if it fails to stem its losses and stop burning cash.
The "going concern" warning from the struggling U.S. automaker had been expected, but underscored the stakes for GM as it seeks up to $30 billion in U.S. government aid to restructure outside a court-supervised bankruptcy process.
GM’s shares dropped 15 percent to $1.87 in premarket trading.
GM said its creditors had agreed to waive a requirement that could have allowed them to force the automaker to repay more than $6 billion in loans because of the warning in order to allow GM to press its case for government aid.
Guardian Unlimited – Three "distressed debt investors" – hedge fund Polygon, restructuring specialist Oaktree and private equity firm Alchemy – have taken control of Countrywide, Britain’s biggest residential estate agent, which was bought by US private equity firm Apollo less than two years ago for about £1bn, mostly financed by debt. Together, they have taken a majority stake for one-third of the price paid by Apollo.
Distressed debt investors, which specialise in buying financial instruments relating to troubled companies at rock-bottom prices, have been saying for two years that buying debt on the "secondary market" – where company loans are traded after the original lender has sold the debt on – was too expensive. Now, they appear to be judging it the right time to move back in.
