Goldman Sachs: The Glue That’s Holding the Black Ops Economy Together
July 29th, 2007Hedge fund collapsing? Can’t get credit? We can help. Call our toll-free number to speak with a representative now!
Via: Wall Street Journal:
A number of hedge funds have profited by anticipating the difficulties in the housing market. But others made money in recent years through holdings of riskier debt, and now these managers are seeing their securities drop in value. At the same time, their investors want to get out of the funds and lenders are demanding more collateral, forcing additional sales.
Some financial pros sitting on cash are looking to take advantage of the situation. Wall Street’s Goldman Sachs Group Inc. is launching a $20 billion fund to invest in corporate debt. The fund was expected to amount to $12 billion but has been expanded to take advantage of the turmoil in the market, according to people familiar with the matter.
“It may be fortuitous, but the timing is superb as it relates to the markets,” says John Danhakl, a partner with Los Angeles-based private equity firm Leonard Green & Co. LP.
A Goldman spokesman declined to comment.
Hedge funds such as TPG Axon and GSO Capital Partners, which had kept some of their powder dry, were among those pouncing on debt of companies whose bonds have traded down amid a massive supply of debt, according to people close to the matter. They also are offering to help private-equity firms finance deals that the banks are unwilling to underwrite, these people add.
These funds are taking advantage of a sudden unwillingness on the part of investors to continue to buy loans and other products that have financed buyout deals.
Funds such as TPG Axon and GSO are approaching the banks and offering to take both loans and bonds off their hands — at a sizeable discount, attracted both by the discount and the generous yield. Several hedge funds, for example, bought huge chunks of junior slices of the debt of Dollar General at 87 cents on the dollar, which amounts to a 17.5% yield.
Kohlberg Kravis Roberts & Co. won the retailer in an auction which saw Bain Capital, Blackstone Group and TPG all drop out as the price rose. Investors are especially nervous about Dollar General because of the debt load and because there is general concern about retailers vulnerable to a slowdown in consumer spending.
Hedge funds are discovering that their ability to borrow money to bet on the markets is drying up because the banks themselves are under pressure, left with commitments to fund deals as investors retreat. In many cases, brokers are calling hedge funds and asking them to post more collateral as the value of their holdings plummets.
Related: Goldman Sachs Creates Private Stock Exchange
Research Credit: PD
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