New York (HedgeCo.net) – We reported on Friday that the Third Avenue Focused Credit Fund, a mutual fund focused on trading high-yield debt, has blocked investor redemptions in order to liquidate the fund in a more controlled manner. The blocking of redemptions was the first casualty in the slump in high-yield debt, but it didn’t take long for a second fund to fall. While the Focused Credit fund is a mutual fund, the second casualty is a hedge fund.

Late Friday, Stone Lion Capital Partners, a high-yield focused hedge fund, announced that it was blocking investor redemptions at this time. Stone Lion may be the first hedge fund to fall in this bear market for junk bonds, it is unlikely to be the last.

A recent article from ZeroHedge.com pointed out some scary coincidences between the current high-yield market and the financial crisis back in 2007. First, there are some that blame a Bear Stearns high-yield fund’s failure back in the summer of 2007 as the catalyst that started it all. Guess who manages Stone Lion Capital Partners? Two former Bear Stearns fund managers—Alan Mintz and Gregory Hanley.

The second coincidence is in the yield of debt with a rating of CCC and lower. The Bank of America- Merrill Lynch index for credit rated this low just jumped to a yield of 17.24%. The last time the index was this high was on September 15, 2008—the weekend Lehman Brothers filed for bankruptcy.

Rick Pendergraft
Research Analyst
HedgeCoVest