Lehman Preferred Series "J" Preferred (fka LEHJQ)

[coach tequila]

Silver Point Capital snapping up Lehman claims

February 17, 2010 at 7:27 pm by Teri Buhl http://blog.ctnews.com/teribuhl/2010/02/17/silver-point-capital-snapping-up-lehman-claims/
Update

It looks like Greenwich-based Silver Point Capital is really trying to make its move to control a class of creditors in the Lehman Brothers Bankruptcy. On Monday court documents show Silver Point’s Brian Jarmain went on a distressed-debt buying spree, picking up around $130 million in claims from 11 different Lehman Brothers Holdings and Lehman Brothers Special Financing creditors.

Sellers of the debt ranged from other hedge funds like Balestra Capital ($1.2m) to North Star Real Estate ($50m). Silver Point negotiates each deal and then takes ownership of the full value of that unsecured claim against Lehman. While getting a low price because another firm doesn’t want to wait years for a claim to pay out in bankruptcy court seems like a good deal, there is still the risk that there will not be enough money at the end of the process for all the unsecured creditors to get paid. That’s why people familiar with Silver Point believe this is a strategic move to control the voting rights of creditors while the bankruptcy is still in its reorganization phase, and have a bigger say in the eventual payouts.

A spokesperson for Silver Point declined to comment on its trading strategy, which is not a surprise since that might be giving away a competitive advantage.

Bloomberg reported last fall that claims on Lehman Brother Special Financing were trading for 38 to 39 cents on the dollar.

One bankruptcy lawyer Greenwich Time talked to said Silver Point clearly thinks there is more value in the Lehman debt than most the rest of the market does. He pointed out it takes a very sophisticated investor who understand all the mirrors of debt structure in the Lehman case to trade it with any financial savvey and make a profit. You see, there is also the recent precedent setting court decision by the US courts that countered a decision by the English Courts regrading how some of the CDO (derivative debt) claims against Lehman Brothers Special Financing will be paid out in bankruptcy. The FT has a pretty good explanation on how some investors could be paid out now when they previous thought they were out of luck. On February 3rd Shearman & Sterling, a top bankruptcy law firm, wrote a note to clients altering them to the need to change debt contracts because of this decision. All this uncertainty just fuels the trading opportunities for firms like Silver Point to score even more discounted prices from firms holding LBSF debt like Balestra Capital had.

Since timing to recovery is a big factor in Silver Point’s chance to make a profit on the trade, does this mean distressed debt experts at the fund, who are pretty good at figuring out what the end game recoveries will be, have found the sweet spot? Silver Point has been making large buys of Lehman claims for months, but then so have Elliot Management, King Street and Paulson & Co. Stay tuned as we watch to see who will really profit off the carnage of the failure of Lehman.

Coach T

FYI - Elliot Management is now on the Ceditors Committee!