Philip Falcone, the hedge fund manager under fire from customers to tie up money in a wireless network and other hard to sell the assets, plans to help fund bets on the future by selling stocks and bonds through a shell company publicly traded.
Herald Group Inc., an oil driller once the hedge funds Falcone took over last year, raised 350 million U.S. dollars this week with the sale of five-year debt with a yield to maturity of a 11 percent . Falcone plans to use cash from the company and the ability to issue shares to buy controlling stakes in industries from agriculture to telecommunications, according to a filing this month.
Ranked among the top managers of hedge funds in early 2008, Falcone made concentrated bets in iron mining and energy producers that collapsed during the financial crisis. Put 15 units of private capital in a separate account to prevent the sale at discounted prices. After losing about two-thirds of assets under management, partly due to customer defections, Falcone is looking for alternative ways to finance investment control.
"Sounds like a backwards way to get permanent capital," said Daniel Celeghin, a partner at Casey Quirk & Associates LLC, a management consultant in Darien, Connecticut, the investment advisory business. "There is a pool of money that can be administered indefinitely and not have to worry about redemptions."
11% yield
Herald Group bonds, due in November 2015, has a 10.625% coupon and were sold at 98.587 cents on the dollar to yield 11 percent. The average high-yield, high risk bonds have a yield to maturity of 7.82 percent, Bank of America Merrill Lynch index data show. The greatest risk of debt, rated CCC and lower returns, 11.48 percent.
The company's shares have fallen ghost 38 percent this year and have lost a quarter of its value since late August. Shareholders include Legg Mason Inc. 's Royce & Associates LLC and River Road Asset Management, an asset manager in Louisville, Kentucky-based acquired this year by British insurer Aviva Plc.
Traditionally, hedge funds have raised money by selling limited partnership units to investors and to enter into margin lending or repurchase agreements secured by their investments. Both forms of finance are more temporary, investors can sell the interests of limited partners back to a fund on a quarterly or annual basis, and lenders can demand repayment or sale of assets of the funds it owes its decline market value.
Wireless Betting
Continued investment through a publicly traded company can raise Falcone permanent capital through sales of bonds and stocks, supplementing funds from institutional investors that can be redeemed. You can also make it easier to comply with requests for reimbursement for use of Shell company stock to pay investors, instead of having to dispose of assets, liquidity, said David Guin, director of the practice of values U.S. in the law firm of Cruz Bergman LLP in New York.
"Harbinger Group Inc. was not acquired to be a mechanism to deal with the depreciation of capital funds Herald," said Jeffrey Zelkowitz, a spokesman for Harbinger. "Rather, HGI is a permanent capital vehicle to the house of a controlling stake in the long-term capital in companies that operate across a diverse set of industries."
Falcone, 48, has angered some customers by linking about 90 percent of his flagship, Harbinger Capital Partners Fund and more than half of the Special Fund of the situations in wireless telecommunications investments, from September. The hedge fund manager is trying to build a multimillion-dollar private wireless network connection that most high-speed Internet for businesses that want to offer their customers with services related to the Web.
Goldman Saca
Management Advisors LLC advantage, said in a regulatory filing on June 8 which was to redeem a stake in the flagship, Harbinger Capital Partners Fund due to a "mismatch" between the liquidity offered to investors and liquidity of the underlying investments of Harbinger Capital Partners.
Goldman Sachs Group Inc. plans to release its entire $ 120,000,000 Harbinger Capital Partners investment after a decrease of 15 percent until mid-October and the revelation that Falcone borrowed money from a fund to pay his personal taxes, according to people briefed on plans.
Harbinger Capital Partners began to embark on a different funding strategy in July last year, when three of its hedge funds paid $ 74 million to acquire a 51.6 percent stake in Zapata Corp. family of Malcolm Glazer Financial . Zapata reinstated as the Herald Falcone Group in December and later moved its headquarters from Manhattan to Rochester, New York.
"Long-term Investments"
The company, co-founded in late 1950 by former U.S. president George HW Bush as an oil drilling contractor, has no operating business. As of September 30, assets including seven employees, approximately $ 139,900,000 in cash and Treasuries, and a listing on the New York Stock Exchange.
Under an investment agreement in March formal management, Harbinger Capital will use the shell to obtain "control shares" in companies operating in six industries, including consumer products, insurance and financial products, telecommunications, agriculture , power generation and water and natural resources, according to a Nov. 1 filing with the Securities and Exchange Commission.
"Our corporate structure provides significant advantages compared to the traditional structure of hedge funds long-term holdings," said Herald Group on 01 November, the SEC filing. company's corporate structure also provides additional options for the financing of acquisitions, the filing said, "including the ability to use our common stock as a form of consideration."
Spectrum Brands
Falcone does not intend to use Herald LightSquared Group Inc. to finance the construction company wireless network, Zelkowitz said.
Harbinger Hedge funds plan to swap most of its majority stake in the trading of spectrum Holdings Inc. marks an additional shares 119900000 Herald Group, a move that will leave them holding 93 percent of its common stock . After the exchange of shares, Harbinger Group shares held spectrum marks a market value of about 767 million U.S. dollars along with cash from the company.
Herald Group needed to start shopping as the New York Stock Exchange in August reported that management actions could be delisted unless an operating business in May 2011, according to the quarterly report filed with the SEC on 09 November.
According to an Oct. 8 filing with the SEC, the fund Harbinger Capital logo offers ghost company assign its right to purchase U.S. life insurance unit of Old Mutual plc, an agreement of $ 350 million was announced in August. Herald Group discussed the financing of the acquisition through bank loans or the sale of high yield bonds or convertible preferred stock.
Citadel, KKR
On October 22, Grupo Heraldo reported that the company and the hedge fund had jointly decided not to transfer the rights to purchase.
There have been few other moves by hedge funds to secure the long-term financing, in part because depreciation is often a problem before the credit crisis, according to Celeghin.
Ken Griffin of Citadel Investment Group LLC sold $ 500 million five-year bonds to investors in 2006, the first sale of bonds by a hedge fund. The sale may have helped the Chicago firm reduce dependence on the financing of investment banks on Wall Street.
private equity firms, which invest in hard-to-sell assets have been sold shares in the funds that are then listed on a stock, which require investors who want to charge to sell their shares on the open market rather selling it back to back to NAV.
Depreciation
Kohlberg Kravis Roberts & Co., now KKR & Co. LP, raised $ 5 billion in 2006 from the sale of shares in a private equity fund listed on Euronext Amsterdam until last year. For KKR, the fund was the first step to becoming a public company. The company last year merged with the public fund and this year moved to contribute to the New York Stock Exchange.
"It was not until 2007 when it all became fluid and everybody wanted the hedge funds had a problem," said Celeghin.
Investors sought to pull almost $ 300 million hedge fund between October 1, 2008 and June 30, 2009, according to Chicago-based Hedge Fund Research Inc., forcing managers to sell illiquid assets at depressed prices block or refunds.
Herald was hit particularly hard. During the third quarter of 2008, when 500 the Standard & Poor's fell 8.9 percent, Falcone sold 4.1 billion U.S. dollars of shares in hedge funds through the reduction or elimination of investments in 15 companies.
LightSquared
In November, Falcone found that its flagship fund buying nearly 20 million shares of Calpine Corp. Special Fund situations. Herald ranked the largest shareholder of the energy producer at the time, with a 25 per cent.
Falcone is to liquidate the Fund 80 percent of 2 billion U.S. dollars Special Situations, which has a piece of investment LightSquared, at the request of customers, investors say. Falcone has been trying since June to raise $ 1 billion to $ 1.5 billion for LightSquared of investors willing to commit capital for several years, according to potential investors who have seen the marketing documents.
total assets of the firm based in New York have declined to about $ 9 billion, from September, from $ 26 billion in mid-2008.
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