Saba, Redwood Are Among Credit Funds Buying Evergrande Bonds

(Bloomberg) -- Saba Capital Management, Redwood Capital Management, Contrarian Capital Management and Silver Point Capital are among funds that have built positions in offshore bonds of China Evergrande Group’s ahead of a likely default of the real estate giant.  

The four investors are among the credit funds that took a position in Evergrande’s $19 billion dollar-denominated notes in recent weeks, as prices fell to about 25% of face value amid uncertainties over the future of China’s second largest developer, according to people with knowledge of the matter who asked not to be identified because the transactions are private. 

While Evergrande’s high-profile unraveling -- and its social and political risks -- is unique, the funds have plenty of experience in the often-dicey world of distressed debt investing. Ruben Kliksberg’s Redwood and Edward Mule’s Silver Point were both involved in the bankruptcy of mall owner Washington Prime Group, and Boaz Weinstein’s Saba scored big during the pandemic with bets on troubled travel companies. 

Representatives for Saba, Silver Point, Contrarian and Redwood declined to comment. 

Credit markets worldwide have been roiled by growing concern that Evergrande is heading for a default. The company missed interest payments due Monday to at least two banks, and has about $120 million of bond coupons due Thursday. 

A positive outcome is far from guaranteed for distressed-debt investors dabbling in Evergrande, a company saddled with about $300 billion of liabilities whose debt restructuring will be closely watched by Beijing. Analysts have laid out a range of scenarios that include a total liquidation of the group or a benign takeover by a state-owned enterprise. Banks have also been reluctant to offer credit-default swaps on Evergrande’s debt, making harder for some funds to get involved because they can’t easily hedge against losses.

King Street Capital Management has a position of about $5 million as it explores the investment, a person with knowledge of the matter said. A representative for the firm declined to comment. 

Last week, Redwood teamed up with Contrarian, Saba and Ashmore Group -- one of the world’s largest emerging-market credit funds -- to appoint advisers Moelis & Co and Kirkland & Ellis, according to separate people familiar with the matter. 

Law fim Addleshaw Goddard engaged with a separate group of the company’s bondholders and is preparing to form another creditor committee, Bloomberg reported last week. 

Representatives at Ashmore and Moelis declined to comment. Representatives at Kirkland & Ellis and Evergrande didn’t return calls and emails seeking comment.

Concerns over the developer’s ability to make good on its liabilities are rippling through China’s markets. Hong Kong’s benchmark stock index fell 3.3% on Monday, while Chinese onshore markets are closed for holiday, as traders price in the risk of contagion to other real estate firms. The People’s Bank of China injected $14 billion of short-term cash into the financial system last week to contain investor fears.

The turmoil has spilled outside Asia, sparking enough volatility that at least eight investment-grade corporate borrowers stood down from plans to issue bonds on Monday. A key barometer of risk aversion in the U.S. junk-bond market, meanwhile, weakened the most in two months.

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