Tags: thomas cook | collapse | hedge fund | windfall

Thomas Cook Collapse Sets Up $250 Million Hedge Fund Windfall

Thomas Cook Collapse Sets Up $250 Million Hedge Fund Windfall

Roger Utting| Dreamstime.com

Monday, 23 September 2019 08:34 AM

Not everyone lost out with the collapse of 178-year-old Thomas Cook Group Plc that put 21,000 jobs at risk and left travelers around the world stranded.

Speculators including Sona Asset Management and XAIA Investment GmbH stand to earn as much as $250 million from the bankruptcy.

They invested in derivatives that pay out when a company defaults. The fate of those securities was at the heart of the battle over whether Thomas Cook lived or died.

Thomas Cook will be the latest of several big payouts this year for hedge funds and traders who bought these so-called credit-default swaps. The list includes U.K. fashion retailer New Look and Rallye SA, parent of French supermarket chain Casino Guichard-Perrachon SA. More are set to follow as Europe’s economy slows and a growing number of companies come under stress.

The decision to trigger payouts on Thomas Cook CDS lies with a panel of traders called the Determinations Committee. The group is meeting on Monday to debate whether last week’s Chapter 15 U.S. bankruptcy filing was sufficient for payment. Now, it's also being asked to assess Thomas Cook’s liquidation.

CDS are a popular way for hedge funds to bet on companies facing difficulties with their balance sheets. They don’t always pay out in the event of default, however.

Thomas Cook’s rescue could have rendered CDS on the debt worthless and investors including Sona had threatened to block it. Holders of CDS were concerned about a technicality related to plans to convert Thomas Cook debt into shares, leaving the CDS with nothing to insure.

“It’s certainly a relief for the hedge funds that Thomas Cook has filed and they haven’t had to push the company into administration,” said Marc Pierron, a senior credit analyst at Spread Research in Lyon.

If rescue talks hadn’t collapsed over the weekend and the hedge funds had undermined them to ensure a payout, it would have added to criticism of the CDS market.

Regulators are already eyeing the derivatives market for so-called manufactured credit events, when funds entice companies to miss bond payments they could otherwise make.

© Copyright 2019 Bloomberg News. All rights reserved.

   
1Like our page
2Share
InvestingAnalysis
Not everyone lost out with the collapse of 178-year-old Thomas Cook Group Plc that put 21,000 jobs at risk and left travelers around the world stranded.
thomas cook, collapse, hedge fund, windfall
347
2019-34-23
Monday, 23 September 2019 08:34 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved