December 12, 2013 archive

The proper reaction is to love it and cherish it.

Blackstone Unit Wins in No-Lose Codere Trade: Corporate Finance

By Stephanie Ruhle, Mary Childs, and Julie Miecamp, Bloomberg News

2013-10-22 15:02:47

GSO, the New York-based credit investing unit of Blackstone, the world’s largest private-equity firm, bought Codere’s bonds and credit-default swaps in the first half of this year, hoping to profit from differences in pricing of the instruments in what’s known as a basis trade, according to a person familiar with the transactions.

The company’s willingness to pay the coupon late helped ease restructuring negotiations as many bondholders also held credit-default swaps and would benefit from a missed payment, the person said. Codere made the August payment two days after a 30-day grace period, and the International Swaps & Derivatives Association ruled that there was a failure-to-pay credit event, resulting in a $197 million payment to holders of the swaps.

“As a lender, the idea is to help somebody make payments on their debt,” said Bonnie Baha, the head of global developed credit at Los Angeles-based DoubleLine Capital LP, which manages about $53 billion. “It’s generally not to pay them not to make payments on their debt so that you can benefit via a derivative instrument.”

Blackstone Made Money on Credit-Default Swaps With This One Weird Trick

By Matt Levine, Bloomberg News

2013-12-05 22:47:32Z

The Blackstone Codere trade — in which Blackstone Group LP bought credit-default swaps on troubled Spanish gaming company Codere SA, then agreed to roll a $100 million revolver for Codere on favorable terms in exchange for Codere agreeing to make an interest payment on some bonds two days late, thus creating a technical default and triggering the CDS, pocketing some gains for Blackstone at the expense of the CDS writers, without costing Codere anything — is such a glorious pinnacle of financial achievement that of course someone had to make a television show about it. I would have preferred a prime-time miniseries, but what we got is a “Daily Show” segment, and that will have to do.

Really, the only reason to cover this story is its majestic beauty. Which is a great reason to cover it, don’t get me wrong; it’s just that aesthetic appreciation of clever derivatives trades is sort of a specialized niche. Certainly “The Daily Show” didn’t muster much admiration and instead spent seven minutes criticizing everyone else for not covering the story. This is wrong. This trade is so lovely that the proper reaction is to love it and cherish it and hold it close to your heart, not to complain that nobody else does.

The credit-default swaps market is a way to express in terms of money the market’s estimate of a company’s chance of default — real default, not missing a payment by two days — in the future. Blackstone found a way to turn that expression in terms of money into money. One day it had a CDS contract with a mark-to-market value of 11 million euros or whatever; the next day it had 11 million euros. One day the banks were taking risk on Codere’s credit that had gone against them to the tune of 11 million euros; the next day they had no risk and 11 million fewer euros. The risk that they got rid of was still worth about 11 million euros.

On This Day In History December 12

Cross posted from The Stars Hollow Gazette

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

December 12 is the 346th day of the year (347th in leap years) in the Gregorian calendar. There are 19 days remaining until the end of the year.

On this day in 1787, Pennsylvania becomes the second state to ratify the Constitution, by a vote of 46 to 23. Pennsylvania was the first large state to ratify, as well as the first state to endure a serious Anti-Federalist challenge to ratification.

Pennsylvania drafted the most radical of the state constitutions during the War for Independence. By excluding Quakers and all other pacifists unwilling to take oaths of allegiance to the Revolutionary cause, a fervently anti-British and anti-Indian Scots-Irish faction had seized power for the first time in the remarkably diverse state. Only when pacifists were again able to exercise the franchise in peacetime was it conceivable that the more conservative U.S. Constitution might pass in Pennsylvania. Large states had the most to lose by joining a strengthened union. James Wilson’s genius in describing the nature of layered sovereignty in a federal republic, using the solar system as an analogy, was invaluable in convincing Pennsylvanians to ratify. Anti-Federalists found themselves in the hypocritical position of criticizing the federal Constitution for failing to codify the freedom of religious practice they had actively denied their fellow citizens during the War for Independence.


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