WEST PALM BEACH, FL (www.hedgeco.net) – Hedge funds� lending practices have been criticized by traditional lenders such as banks and other Wall Street firms who charge that hedge funds have invadedtheir money lending arena in a bid to achieve absolute returns to their investors. In addition, traditional lenders charge that hedge funds have often adapted their own rules in lending money toclients, by amending loan agreements. Such changes means that companies borrowing money from them may likely end up in bankruptcy courts.
The typical clients of hedge fund�s lending business include cash-strapped firms who find hedge fund lending business an attractive option. Hedge funds have defended their standard practice in lending money to interested firms, arguing that the standards they adopt helps to instill financial discipline and responsibility on their borrowers.
Many hedge funds firms entered into the private equity arena. Critics also charge that some hedge funds offer loans and hedge against such loans by shorting the stocks and bonds of their borrowing companies. Many of such companies find themselves in distressed conditions; critics also charge that by lending money to distressed firms and shorting their stocks or bonds also means that hedge fund companies are not interested in the financial health of their borrowers.
Henry Miller, head of restructuring boutique Miller Buckfire & Co., said, “Many hedge funds play in a gray world, they sometimes do things to make their positions worth more, which can cause difficulty for others.” Distressed companies are facing difficulties raising additional capital. Adviser Michael Kramer, said, �Hedge funds are dramatically changing the landscape of the bankruptcy arena.� Kramer added, �This is the first (lending) cycle where loans from hedge funds have been a factor. It will make workouts far more complicated when hedge funds have a louder voice at the table.”
Hedge funds now dominate the second lien loan market experts believe. James Sprrayregen a bankruptcy lawyer said, “Hedge funds do what others are not willing to do.� He added, �They are willing to take more risk for more return. And they are agnostic about outcomes as long as they are protected.”
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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