Comments on: Are hedge funds abusing bankruptcy? A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: nbywardslog Wed, 08 Sep 2010 05:32:32 +0000 While the idea of ‘hedging’ is nothing more than sensible investment practice, Hedge Funds in 2010 are nothing less than sociopathic. Like many heavily packaged products and directionalising malpractices, they have nothing to do with – and make no contribution to – the greater good.

I doubt if any ordinary investor or mezzanine entrepreneur will ever be able to take bourses seriously until the influence of hedgies has been reduced – preferably by a major Crash rather than regulation. Crash 2 is coming for sure, but if what happens is that hedgies simply indulge in necrophilia, it will be time for Congress in the US, and the Commission in the EU, to put a pillow over some faces out there. usive-insiders-believe.html

By: najdorf Tue, 07 Sep 2010 18:21:20 +0000 I also had some questions about that article this morning. It almost totally ignores the enormous power bankruptcy judges have to corral litigous creditors. Most large debtors these days come into bankruptcy with a plan that secured creditors have already lined up to support. Unsecured and equity can raise all the objections they want, but to the extent that the judge doesn’t care to lift exclusivity or listen to lawyers argue about valuation (they usually don’t care to do either for very long), the judge will quickly overrule them. Unless a higher court will stay the sale of assets/plan effectiveness (they usually won’t), these objections become moot in short order. That’s not to say that there isn’t always somebody in the room arguing that
equity is in the money – it’s just that they have a limited number of tools for actually delaying the process, given that they know the equity only really has limited option value, the judge knows the same thing, and good bankruptcy lit counsel is expensive. They throw up enough objections to occasionally persuade the other parties to throw them 1-5% of the new equity and pay their expenses, and then everybody goes to the bar down the street from the courthouse by 5:30.

Furthermore, no one is more conscious of the time value of money and the risk of delay than leveraged investors in high-yield debt (i.e. hedge funds). I can’t name any bankruptcies that were meaningfully delayed by hedge funds and I can think of several that were sped up by the consolidation of claims into a small number of hands with expertise and an interest in speedy reorganization (GGP, Extended Stay, etc.).