News Column

Hedge funds swoop in to profit off Detroit debt

July 12, 2014

By Nathan Bomey, Detroit Free Press



July 12--Several major hedge funds have acquired a portion of Detroit's bad debt in an apparent attempt to turn a quick profit on the city's Chapter 9 bankruptcy.

The hedge funds, which specialize in making money off distressed debt, today revealed their moves by filing official objections to the city's restructuring plan.

But their emergence -- which was long expected -- may yet prove to be a positive development because they are often inclined toward settlements.

In other words, the arrival of hedge funds -- which critics often refer to as vulture investors -- may help resolve the largest municipal bankruptcy in U.S. history. For now, though, they are officially objecting to Detroit emergency manager Kevyn Orr's plan of adjustment.

The hedge funds that revealed themselves as creditors in Detroit's bankruptcy include Panning Capital Management, Monarch Alternative Capital, Aurelius Capital Management and Stone Lion Capital Partners.

It was not immediately clear how much debt the hedge funds had acquired, at what price or when. They may be targeting the $1.4 billion in pension obligation certificates of participation issued in 2005 by Mayor Kwame Kilpatrick's administration to fund Detroit pensions.

The city has argued that debt, insured by Syncora and Financial Guaranty Insurance Co. (FGIC), was illegal and should be wiped out.

But a settlement in which the city agrees to pay a small percentage of those claims is not out of the realm of possibility.

Contact Nathan Bomey: 313-223-4743 or nbomey@freepress.com. Follow him on Twitter @NathanBomey.

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(c)2014 the Detroit Free Press

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Source: Detroit Free Press (MI)


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