Jon Bauer’s Contrarian Capital is another hedge fund that continues to profit from the liquidation of Lehman Brothers Holdings Inc. (OTCMKTS:LEHMQ) debt. In both the US and UK, Contrarian Capital is seeing success in its claims against Lehman debtors and the investment was Bauer’s single largest gainer in the last quarter. Seth Klarman’s Baupost Group has been enjoying profits through Lehman debt payments for the past two quarters as well.
Contrarian Capital returns
Contrarian Capital, a distressed assets focused fund, returned 4.6 percent in the first quarter. The $2.1 billion fund had only $220 million disclosed in long equity positions to the SEC as of Q4. Contrarian’s highest exposure is in corporate debt in the US, Europe and EMs.
The performing debt of the US corporate sector contributed +1.72 percent to the fund’s total return in Q1. In this category credit of Verso Paper Corp. (NYSE:VRS), Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), TXU Energy was particularly profitable. Contrarian is also actively involved in pursuing new credit lines, and the fund bought debt of a leading battery manufacturer in the last quarter. The position is not named but Contrarian has maintained an equity position in Exide Technologies (NASDAQ:XIDE) for some time now.
The restructured equities portfolio contributed the highest return to the fund – Contrarian Capital has gained from Charter Communications, Inc. (NASDAQ:CHTR) and Resolute Forest Products Inc (NYSE:RFP) in the past quarter. Like so many other hedge funds, Contrarian was unable to turn any magic in its short portfolio, and the total detraction was 1.5 percent on the overall portfolio.
Lehman Brothers Holdings Inc. (OTCMKTS:LEHMQ) was not the only post-bankruptcy investment that has been giving off profits for Contrarian. The fund converted 50 percent of its bond holdings in Eastman Kodak Company (OTCMKTS:EKDKQ)’s to DIP loans and is also actively involved in reorganization discussions with the company. Contrarian is also gaining from appreciation in Overseas Shipping Group’s bonds and bank debt.
Europe, Emerging Markets
In European performing debt, Contrarian was up on senior debt of MAUSER WALDECK AG I.L. (FRA:MAU), a plastic and steel equipment manufacturer. Additionally the fund also profited from an Italian fashion company, Cerruti.
In Argentina, Contrarian holds Argentina Euro Disco Bonds which it believes will yield attractively given the dynamic that the country has a small percentage in external debt to GDP. Contrarian also profited from a settlement reached in one of its Mexican corporate debt holdings, where the court ruled in favor of creditors.