Here's a surprise: Detroit bonds are appealing right now to some bargain-sniffing hedge fund managers.
Other opportunity-seekers contact Detroit vendors, offering to buy outstanding invoices for 15 to 55 cents on the dollar, according to Crain's.
The bottom-feeding hedge funds, described as "vulture investors," actually could help the city, bankruptcy beat reporter Nathan Bomey explains in the Free Press.
Hedge funds and private equity investors are quietly circling Detroit, exploring ways to profit from the historic Chapter 9 bankruptcy filing, the Free Press has learned.
The opportunistic investors are looking to gamble by acquiring some of the city’s distressed debt, sources said. They hope to turn a quick profit when Detroit emergency manager Kevyn Orr and bondholders reach a settlement in the future.
It might be a good thing for Detroit to deal with hedge investors because they seek fast profits and are prone to quick settlements, allowing for the city’s restructuring to get under way. In contrast, traditional bondholders and insurers are often more likely to fight aggressively to preserve their original investments and slow down the process.
“It’s an opportunity,” says the head of a firm called Hedge Fund Advisors, located in West Palm Beach, Fla. (where else?). That executive, Andrew Schneider, tells Bomey his clients are actively researching Detroit debt investments.
Another expert speculates that opportunists are drawn by low bond prices and the prospect of getting paid in full by insurance giants that agreed in the past to back those bonds in the case of default. "Vulture investors" also may believe Orr will agree to pay bondholders a settlement instead of trying to wipe them out as part of his fast-track push to wrap up the bankruptcy case, a different specialist comments to the Freep.
In the front-page Crain's report on another breed of opportunity-seekers, Amy Haimerl speaks with providers of goods and services who're getting offers to buy their Detroit invoices:
Since the city filed its list of unsecured creditors with the U.S. Bankruptcy Court, claims-trading firms from across the country have been calling and mailing area businesses trying to make deals for their outstanding invoices. . . .
"We've gotten a half-dozen offerings from these guys," said Leon Saperstein, general manager of Detroit-based Federal Pipe & Supply, which has an outstanding invoice of $16,000. "We've been pretty barraged by people trying to buy our receivables with the city."
