The Conversation (0)
According to the Wall Street Journal, ‘vulture’ hedge funds are targeting distressed coal companies such as Walter Energy (NYSE:WLT). The funds bet against shares and debt of ailing companies, before purchasing controlling shares of the same companies. If companies like Walter eventually go bankrupt, the fund is first in line to claim their assets should they file for bankruptcy.
According to the Wall Street Journal, ‘vulture’ hedge funds are targeting distressed coal companies such as Walter Energy (NYSE:WLT). The funds bet against shares and debt of ailing companies, before purchasing controlling shares of the same companies. If companies like Walter eventually go bankrupt, the fund is first in line to claim their assets should they file for bankruptcy.
As quoted in the publication:
The funds have been buying up much of a $1 billion bond secured by Walter’s assets for 85 to 90 cents on the dollar, people familiar with the matter said. The holders would have first claim to Walter’s assets in a bankruptcy. Meanwhile, the bonds yield as much as 14% at current prices.
Several of the funds had also sold short the company’s unsecured bonds, a wager that their value will fall. The bonds have lost 58% since June 30 and trade for 27 cents on the dollar.
Alpha Natural Resources Inc. and Arch Coal Inc. have also seen heavy interest from distressed-debt buyers, people with knowledge of the matter said. Along with Walter Energy, the companies have a combined debt of $12.2 billion, according to Morningstar.