Hedge Funds are Bringing Back Everyone’s Least Favorite Toxic Investment
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Two deals in the works bundle unrated subordinated debt
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Products are reminiscent of the TruPS CDO craze of the 2000s
Joshua Siegel is bringing back a version of one of the most toxic financial vehicles ever devised and arguing that this time it’s going to be different.
His StoneCastle Financial is among the funds that are reviving the collateralized debt obligation, or CDO.
CDOs stuffed with mortgages and their derivatives caused billions in losses around the world during the 2008 crisis. The CDO that StoneCastle put together is another kind. It’s backed by subordinated debt issued by about 35 community banks, some of them so small they don’t have credit ratings. Subordinated debt is paid off last in a bankruptcy, so issuers typically compensate buyers with higher yields than on other borrowings…
Hedge Funds are Bringing Back Everyone’s Least Favorite Toxic Investment
