Greenwich Hedge Fund Is Mystery Firm Behind Venezuela Lawsuit
(Bloomberg) -- From the moment the $182 million lawsuits showed up in the docket of Manhattan state court last month, the speculation began to swirl.
The defendant was recognizable enough: Venezuela’s ailing state-controlled oil company, PDVSA. But the plaintiff, some firm called Red Tree Investments LLC, was a total mystery. The firm provided almost no clues in the suits, listing its address in care of a Washington law firm, and showed up in no other suits. All that was known was that it was holding $182 million of unpaid loans originally extended by General Electric Capital and that it was now suing PDVSA for repayment.
It turns out that Red Tree was created by a Greenwich, Connecticut-based hedge fund that specializes in buying distressed debt. Contrarian Capital Management, which had about $5 billion under management last year, appears to have set up Red Tree in May, according to a document it filed in Delaware signed by Gina A. Scianni, Contrarian’s general counsel. It bought the loans from GE Capital in January.
“Many investment firms use nominees to keep their names out of the public eye, because they are wary of being targeted as ‘vultures,’” said Jay Newman, the former star fund manager at Elliott Management Corp. in New York. “But it’s an illusion to think that, in high profile litigation, facts like the identity of the ultimate beneficial owners can be suppressed indefinitely.”
Contrarian, through an outside spokeswoman, declined to comment. It was founded in 1995 by three Oppenheimer & Co. employees, Jon Bauer, Janice Stanton and Gil Tenzer, according to its website. The hedge fund focuses on privately traded instruments like trade claims that are difficult to sell and buy.
The Red Tree lawsuit signals the latest wave of litigation against Venezuela by distressed debt investors who scoop up the cheapest and most troubled assets from desperate sellers looking for a chance to exit. Its economy in shambles, the country is behind on $10 billion of payments on bonds issued by the government and PDVSA after mostly stopping outlays in November 2017. Bond investors are anticipating a $60 billion debt restructuring if U.S.-backed opposition leader Juan Guaido manages to oust President Nicolas Maduro and take control of Venezuela.
In January, Pharo Management sued Venezuela for $26 million in unpaid principal and interest on bonds it holds. And on Wednesday, Dresser-Rand Co., which makes equipment for oil and gas production, sued PDVSA for $132.3 million, claiming it defaulted on a 2017 loan.
Contrarian also appears to have another stake in Venezuela assets. In August, the firm identified itself in court papers as part of a group of U.S. and U.K. fund managers that held more than $1.5 billion in PDVSA bonds due to mature in 2020. They were seeking to prevent Crystallex International Corp., a bankrupt Canadian gold mining company, from seizing shares of PDV Holding Inc., parent of Houston refiner Citgo, to satisfy a $1.2 billion arbitration award over a mine that had been nationalized by the Venezuelan government. PDVSA owns Citgo.
The federal courthouse in Manhattan was the site of more than a decade of litigation over Argentina’s 2001 default on $95 billion in sovereign bonds. Elliott Management was a leader of a group of defaulted bondholders that reached a historic $4.65 billion settlement with Argentina in 2016.
The Red Tree cases are: Red Tree Investments LLC v. Petroleos de Venezuela SA, 651005/2019, 651006/2019, New York State Supreme Court (Manhattan).
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