In-depth on Hedge Fund Avenue Capital

Download 2010-3-27 Avenue Capital's Chief: Don't Call Him a 'Vulture' –

Mr. Lasry's firm buys up debt of troubled companies, with hopes of big profits when those firms, and their bonds and bank debt, return to health.

"A lot of what he said turned out to be right," Mr. Emanuel said of Mr. Lasry's previous economic outlooks. "I stayed in touch with him because he has a pretty good read on the economy."

Mr. Lasry was right in recent years when he predicted that the leveraged-buyout boom and a real-estate bubble would lead to a wave of bankruptcies as weaker companies proved unable to refinance debt.

What he didn't foresee was that conditions would deteriorate so rapidly, and that the resulting financial crisis would force big changes in the way he does business.

Mr. Lasry was once content to buy senior corporate debt at a discount and then patiently wait for values to recover. These investments are first in line for repayment in the event of bankruptcy, which kept Mr. Lasry's positions relatively protected.

But when values plunged after Lehman Brothers' failure in September 2008, companies seeking bankruptcy protection often couldn't repay senior bank lenders in full, let alone bondholders just below them.

That forced Mr. Lasry to move from hedging his bets to doubling down. From his creditors' perch, Mr. Lasry has made deals to exchange his debt for equity and pumped additional money into companies to ensure he seizes control, much like a bank forecloses on a delinquent homeowner.

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