Here is one of those trades that will set some people’s teeth to gnashing. A couple savy investor types made a bundle speculating on GM bonds and bank loans.
Investors that bought General Motors Corp. loans and speculated on declines in its bonds may be in line for “one of the greatest payoffs in the history of long- short investing,” according to Citigroup Inc. analysts.
Firms that made this bet include BlueMountain Capital Management LLC, which bought pieces of GM loans and purchased derivatives linked to its unsecured debt that would pay out if the company defaulted, according to a letter the New York-based firm sent to investors last month.
BlueMountain’s bet that GM secured creditors would recover substantially more than bondholders was among the “biggest winners” of such trades in its Credit Alternatives Fund, according to the letter to investors dated May 14.
David Kaiyalethe, a spokesman for the New York-based firm, declined to comment.
Deutsche Bank AG also made the trade last year in its proprietary trading group then run by Boaz Weinstein, according to a person familiar with the matter. The Frankfurt-based bank still owns GM’s revolver, two people familiar with the position said last month. Deutsche Bank spokeswoman Michele Allison declined to comment.
It’s interesting that the winners don’t want to comment. Don’t stick your head out of the foxhole anymore than is necessary these days.