Goldman Sachs Group Inc (NYSE:GS) was not just buying shares in Banco Espirito Santo; it also loaned funds to the Portuguese bank. Goldman Sachs loaned $835 million to Banco Espirito Santo SA (ELI:BES); at a time when the bank was knee-deep in financial troubles, reports WSJ. Goldman Sachs also held a 2.8% stake in the share of capital of BES; the position was slashed in early August, during which time, shares of BES fell by 80%.
Distressed hedge funds buy Espirito Santo credit
The Wall Street Journal reports that after looking unsuccessfully for suitable outside buyers to unload its huge chunk of bond holdings in Banco Espirito Santo SA (ELI:BES), the U.S-based bank had to settle finally with selling to hedge funds which specialize in distressed debt. These unnamed hedge funds have bought some part of BES debt while the fate of rest of the Goldman Sachs’ holding is unknown.
These liabilities were transferred to Novo Banco, the “good bank” formed out of Banco Espirito Santo’s carcass, which means that at some point these new creditors will be paid. BES has been a bad investment for hedge funds so far as value of its debt and stock has declined sharply over the past few months. D.E. Shaw and Baupost Group held major positions in the equity. Baupost Group sold its position at the end of July. Among hedge funds which held credit of BES before it went under were, Dan Loeb’s Third Point, GLG Partners, Aurelius, Steve Tananbaum’s GoldenTree and VR Global. Reportedly these hedge funds are looking to sue BES as their bond holdings were written down to zero after the bailout.
Oak Finance loans funds to Banco Espirito Santo
Goldman Sachs established a special-purpose vehicle in Luxembourg to finance dollar-denominated funds for the Portuguese bank in May. BES in turn was looking to appease its creditor, Venezuela’s state oil company, PDVSA Petroleo SA. PDVSA had awarded a $834 million contract to Chinese construction company, Wison Engineering Services Co., to build an oil refinery. Oak Finance Luxembourg, the SPV established by Goldman Sachs, furnished Banco Espirito Santo SA (ELI:BES) with $835 million on July 3. Exactly a month later, on August 3, Banco Espirito Santo was bailed out by the European Union.
Oak Finance issued $785 million worth of notes at an interest rate of 3.5% which were bought by Goldman Sachs. The Wall Street bank had to settle with a loss when it sold some part of it to hedge funds. We will be looking out for news from the hedge funds who bought the debt of the Portuguese bank.