Billionaire Hintze's Hedge Fund Forced to Sell Risky Corporate Debt at Heavy Discount

(Bloomberg) -- Billionaire Michael Hintze’s CQS hedge funds offloaded collateralized loan obligations at a deep discount in April to raise cash, according to people familiar with the matter.

As the coronavirus pandemic hammered credit markets, the firm sold stakes in the lowest-rated tranches of European CLOs -- securities created from sub-investment grade loans pooled together -- to a small group of banks for about a fifth of their face value, said the people, asking not to be identified because the information is private.

A spokesman for the London-based investment firm declined to comment.

Bloomberg News previously reported that a hedge fund had sold about $100 million of the securities to banks including Bank of America Corp. The identity of the seller was not confirmed at the time.

Trading in CLOs dried up in March and April, with U.S. deals pricing at between 20 cents and 80 cents on the dollar, depending on the quality of the collateral pool, market participants said. European CLOs were similarly priced.

Hedge funds that bought structured-credit assets using borrowed funds suffered as their investors moved to withdraw money and their lenders cut back on the leverage they provided. The dual crunch sparked a sell-off as funds raced to meet liquidity needs.

The implosion in the structured-credit market contributed to heavy losses in other hedge funds, such as Medalist Partners, which blocked investors from taking their cash out of one its funds after loosing as much as 50% in March.

CQS’s sale of the CLOs came as its flagship CQS Directional Opportunities strategy posted losses of about 17% in April, after plunging 33% in March.

Credit-focused CQS managed about $16 billion at the end of April, while its main fund had about $3 billion before the losses.

©2020 Bloomberg L.P.

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