Distressed investors bought and sold $2.34 billion worth of
bankruptcy claims last month, nearly all of which is tied to Lehman
Brothers Holdings Inc. and MF Global Inc.
Approximately $2.2 billion worth of Lehman and MF Global claims
traded hands in June, according to data released Tuesday by claims
trading market operator SecondMarket Inc., meaning that the
wind-downs of those two financial firms accounted for 94% of the
debt that traded last month.
Specifically, $1.9 billion of Lehman debt was bought and sold in
422 trades, while $296.8 million of MF Global debt swapped hands in
270 trades.
The relative lack of activity in other cases can be attributed
to the size of the Lehman and MF Global cases as well as too few
large Chapter 11 filings to satisfy distressed investors'
demand.
"At the end of the day, the market right now for claims trading
is not particularly robust," Andrew Gottesman, the head of
SecondMarket's bankruptcy claims market, said in an interview
Monday. "It's harder to find product."
As a result, distressed investors are circling the bankruptcy
cases of companies like American Airlines parent AMR Corp. (AAMRQ)
and defunct telecommunications firm Nortel Networks Corp. (NRTLQ),
where investors believe creditors have a chance of recovering a
substantial portion of what they're owed.
AMR, which is talking to potential merger partners and getting
closer to securing labor deals with its unions, saw $15.1 million
of its debt swap hands in 49 trades last month. And creditors of
Nortel shed claims worth $8.7 million in 52 trades as they tire of
waiting for the company to distribute the fruits of its
long-running liquidation, which currently top $9 billion.
That money is being held back from creditors as Nortel sorts
through what it owes and to whom, a complex process that can be
slowed by the sheer number of claims and disputes over those
claims.
"Delays like that drive trading," Mr. Gottesman said, as
creditors prefer to wash their hands of a claim in exchange for
cash now rather than hold out hope for a future payout.
In all, SecondMarket recorded 1,013 bankruptcy-claim trades in
June, up by nearly 11% over the 925 trades in May but short of the
1,787 trades in June 2011.
Thanks largely to Lehman and MF Global, the total debt traded
last month marked a 21% increase over the $1.9 billion traded in
May. The dollar value of last month's traded debt also fell short
when compared to the prior June, during which $2.8 billion worth of
debt changed hands.
MF Global has been liquidating since last fall, not under
bankruptcy-court protection but under federal securities laws
because it is a broker-dealer. Lehman emerged in March from its
Chapter 11 proceeding, but its wind-down continues.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Jacqueline Palank at
jacqueline.palank@dowjones.com.
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