Basis Capital, the banished finalist from this week’s Standard & Poor’s Fund Manager of the Year awards, has filed for bankruptcy protection in the US for its Basis Yield Alpha Fund, a hedge fund specializing in corporate and structured credit. The fund is one of several run by Basis, which said earlier this year it had nearly $A1 billion in capital.
Reuters reports that the Cayman Islands-registered fund listed more than $US100 million of assets and more than $US100 million of liabilities in its filing with the US bankruptcy court in New York. Basis Yield said it had in June begun to suffer a “significant devaluation” in its asset portfolio, following market volatility related to US subprime lending defaults.
Apparently the fund got into trouble when the fall in the value of investments led to margin calls, which it was unable to meet, and the issuing of several default notices by counterparties seeking to close out trades or seize assets. Basis said JP Morgan Chase Bank NA, Goldman Sachs International, Citigroup Global Markets Limited, Morgan Stanley, Lehman Brothers International (Europe) and Merrill Lynch International all issued default notices.
Basis told investors earlier this month that losses in the Alpha Fund could reach more than 80% of assets. And yesterday the firm said that two of its other funds had sustained further losses. Basis had appointed the Blackstone Private Equity group to try and help it fix the problems but that was obviously unsuccessful in connection with the Alpha Fund.
Basis joins a growing number of hedge funds effected by the credit market turmoil. In July, Sowood Capital lost $US1.5 billion and was forced to close down and Sentinel, another US investment firm, has been shut with a similar figure for possible losses. Fraud is being claimed in some of its dealings. Two hedge funds controlled by Bear Stearns are also being liquidated.
And news from London that a huge $US6.6 billion fund is facing liquidation after breaching loan covenants. Chenye Finance, an investment vehicle run by Cheyne Capital, a London hedge fund, may now be forced to sell off its assets, according to Standard & Poor’s. The breach of its valuation conditions means it cannot raise new short term debt and will now have to start liquidating itself to repay its lenders, much in the same way as a failed company tries to trade out of administration through an agreement with creditors.
If Cheyne Finance can’t do a deal, then the fear is that the assets could be sold off willy nilly, provoking another credit crisis, especially with an estimated $US47 billion in similar debt overhanging European markets right now.
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