Came across this idea on an old thread on this forum. Case in question was GSO / some spanish company called Codere? Apparently GSO stepped in and agreed to lend only if Codere forced a technical default? Although seems like a very sketchy move to me and one that would probably force other creditors to go to court, in some sense it seems fine in the legal sense as well.
Wondering how relevant these manufactured type of deals are now? Legal ramifications? Does anybody know of a good a source where I can read more about this stuff?
Hi ffffml, just because I'm a bot doesn't mean I don't have feelings...I'm hoping these links are helpful. If not, feel free to throw monkey shit at me...
You're welcome.
https://www.isda.org/2019/03/14/an-important-milestone/
The guy at Blackstone that came up with these trades left to start his own European credit fund
https://www.google.com/amp/s/www.bloomberg.com/amp/opinion/articles/201…
here’s a Matt Levine article on it. Levine is the goat at simplifying esoteric stuff like this. he’s got a couple others too
Don't know about legal impacts but seniors at GSO were NOT happy about it. My question is can you do the opposite? Say you see a struggling company where there is an opportunity to invest in a new tranche, say mezz, or do a full unitranche deal and wipe out their existing cap structure (if their debt be callable). Can you SELL CDS before you make any Indication of Interest to the company and therefore juice your returns?
This happened with Mcclatchy and Chatham Asset Management. This was a few years ago but if I remember Chatham offered to refi/term out some debt at a way below market level while orphaning the cds because no debt would be outstanding at the subsidiary the cds was on-Chatham was short cds and since the CDS would then be worthless, they’d have a huge gain. There was a competing proposal from some funds that were long CDS who also offered cheap financing to keep the debt at that sub, to prevent their CDS from becoming worthless, and I think that was ultimately what happened.
Very intersting, thanks for sharing. Why would a company (this one or otherwise), refuse lower priced financing? I can understand in this case if they wanted to keep debt in their sub and not tie it to the holdco, but if this situation had a single business entity (no holdco or subs), could a company really refuse below market financing? Don't they have an obligation to share holders?
Codere was the first name I ever looked at when I joined an event driven fund back in June 2013. I had done my case study on it actually. They had 2 bonds sitting at a Dutch holding company but the operating companies were based in Mexico, Argentina and other LatAm countries. Anyway they needed access to an RCF and I believe, at the time, JPM wouldn't roll the existing RCF so they were in trouble. The bond docs had a secured lending carve out that would allow them to use receivables to secure a loan. I remember we sold 1 year CDS thinking they had enough levers to pull to secure short-term financing. The longer term goal was for them to IPO the Mexican business to raise funding and deleverage. Anyway I remember reading the press release when they announced they had secured the funding from GSO, at 10% I think, and that they planned to skip the coupon payment on the bonds. At the time I didn't understand why they would trigger an event of default when they managed to secure funding. Later on we all found out why haha. GSO tried to do the same thing with Norske Skog (NSINO ticker) and a few other names before people started to complain to ISDA about these manufactured defaults. That's what I love about distressed debt/special sits, it's a real chess game and you need to think about how the other side of your trade is positioned.
HOV was another big one:
https://www.institutionalinvestor.com/article/b18fd6ps2bq715/the-rise-o…
To avoid that from happeing ever again Codere has a guy from HL Rx on their board which I think is quite funny as you never see advisors on boards of companies
Manuel is on the board as HL was advisor to the BHC when they swapped the bonds into the equity squeezing the family
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