Archive for the ‘Bonds’ Category

Distressed Debt Investing has today launched the Distressed Debt Investors Club, a “community of investors dedicated to sharing ideas and helping each other navigate the sometimes mine-filled path of the distressed debt world.”

Members are admitted on the strength of their application and the thought process evident in the investment idea. Only 250 members will be admitted. Hunter is taking applications for next few weeks and will then admit those accepted to the site at the same time to “allow each member to see other admitted applicant’s ideas and thus begin the process of idea generation and sharing.”

If, like me, deep value, liquidations and activism are your thang, I would encourage you to join. The ability to analyze and trade in the debt side of the ledger will markedly expand your investment universe. Buy up all the bonds and get control like old “Net Quick” Evans or just agitate like Icahn.

Here is the Distressed Debt Investors Club FAQ.

Further questions should be directed to hunter[at]distressed-debt-investing[dot]com.

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In Icahn Takes On Kerkorian in Big Las Vegas Showdown (subscription required), The Wall Street Journal reports that Carl Icahn has built a large position in the bonds of MGM MIRAGE (NYSE:MGM) and is pushing it to restructure in bankruptcy court. MGM is struggling to service approximately $14B in debt and fund payments on its $8.6B City Center project in Las Vegas. MGM is controlled by billionaire Kirk Kerkorian, who holds about 53% of MGM valued at approximately $900M (down from ~$15B in late 2007). Kerkorian’s stake would be wiped out in a bankruptcy filing, which gives secured debtholders priority over stockholders in relation to assets.

It’s an interesting play for Icahn. The WSJ reports that he and Oaktree Capital Management hold a “little less than $500M” face value of MGM bonds out of approximately $7B of the non-bank debt. According to the WSJ, Icahn has little leverage now, but that could change as the bonds fall due:

When MGM Mirage bonds come due in July and October, the bondholders could force a filing if the company is unable to make those payments. Or, if MGM Mirage were to try to tender an offer to repurchase its bonds to lighten its debt load, they could also block that move. “Right now, it is just, sit back and wait,” said a person familiar with the matter. “The company is in a jam.”

The WSJ reports that the company has some unusual debt:

Its $7 billion in bank debt isn’t secured by the kind of assets typically used as collateral, meaning banks can’t foreclose on any of it (sic) properties. Those properties are still generating cash and stand to see strong profits if the economy improves.

MGM’s bank lenders have two reasons to help it avoid bankruptcy: 1. A bankruptcy filing would put the banks “on par with bondholders, leaving the two groups to battle over the assets,” and 2. MGM can still offer its properties as collateral to the banks and so improve their position relative to the bondholders.

The WSJ says that Icahn and Oaktree aren’t working together and their strategies aren’t yet clear:

They could be angling for equity in the company inside or outside bankruptcy. They could also be after some of MGM Mirage’s storied casino assets or simply want to ride out a bankruptcy with the bet that the bonds will recover far more than it cost to purchase them.

If MGM Mirage tried to buy up those bonds, then Mr. Icahn and Oaktree could block such steps.

But the move could blow up on Mr. Icahn and Oaktree if the company is able to avoid bankruptcy or it cuts deals with bank lenders and provides them liens on MGM Mirage’s assets, which could depress the recovery rates for MGM Mirage bonds.

It’s an interesting situation, and one we’re going to watch closely. Hunter over at Distressed Debt Investing says “MGM bondholders are licking their chops about a possible debt for equity exchange” and is looking to build a MGM bond valuation model. We’ll let you know how he goes.

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