13Fs and Post Reorg Equities

One of the my favorite times each quarter is the 45th day after quarter end when hedge funds report their holdings in stocks. My good friend Jay at Market Folly is far and away the best coverage of 13Fs out there and I strongly you suggest you frequently check his site for analysis of some of the best hedge funds in the world.

As a distressed/event-driven investor, I allocate a substantial amount of time to post reorg equities. Many distressed debt funds have a mandate to purchase companies emerging from bankruptcy or who have recently emerged from bankruptcy. Many funds stretch the "recently" to five, six, or even seven years so you will see many distressed funds in names that many people forget even went through the bankruptcy process.

With that said, I also like to look at companies which have recently emerged from Chapter 11 and have a substantial float to get a sense of what event driven and distressed debt funds are doing in these post reorg securities. Let's take a look at a company which recently emerged: Smurfit Stone (SSCC respectively).

Before we begin though, one caveat. Many distressed debt funds will play a reorg prior to a emergence, and then wait until the company is listed and possibly picked up by an index to sell the security into the index buying strength. As with all 13Fs, these filings are just a way to find more ideas and get a sense of what funds are doing out there in post reorg land.

On June 30th, SSCC announced its emergence from bankruptcy. Let's take a peak at their holders list (I've decided to include only the top 30 holders here):

As you can see, this list of 30 funds is a pretty diverse group. Just looking at the top 15 holders (top image), here are the funds I see:

• Royal Capital Management: A well regarded long/short hedge fund that also has played in Lear.
• Apollo Management: Self-explanatory - one of the best.
• Wayzata Investment Partners: All over the distressed scene playing in recent bankruptcy emergences like Neff, Rath Gibson, and Merisant
• Columbus Hill Capital: Started by a former Appaloosa partner (they are also located in Short Hills, NJ), their 13F has names like Dana, MGIC, PMI, Lear as well as some well known large caps like BAC and IP.
• Elm Ridge: Started by Ron Gutfleish who spent time at Omega and GSAM, Barron's wrote in April 2004: "Gutfleish and his posse run their hedge-fund operation from an ultramodern New York office building on Third Avenue. They pride themselves on their ability to stir the pot of controversy. In the almost four years it has been in operation, Elm Ridge has won a reputation for being able to make money in all sorts of markets by aggressive analysis and bare-knuckle trading."
• Brigade Capital: One of the newer members of the distressed pack but also highly highly regarded. Very smart group of portfolio managers and analysts there that play up and down the capital structure and strategies.
• JGD Management i.e. York Capital: Blue chip and as best as they come.
• P Schoenfeld Asset Management: Check their website. Great stuff.
• Litespeed Management: Well regarded event-driven fun run by Jamie Zimmerman, playing in merger arb, distressed debt, and special situations.

Next quarter, after the 12/31/2010 13F filings are in we will re-visit this post re-reorg equity to see who stayed in versus who flipped the security after it emerged from bankruptcy.