New York money management firm John A. Levin & Co. has increased its exposure to bank debt to 56.2% for its Levco Debt Opportunity Fund, according to a letter sent to investors. The fund, which was up approximately 11% in 2004, moved up the capital structure and from fixed-rate to floating-rate instruments, in addition to an increase in its short exposure during the past year.
Even with this more defensive posture, November and December were good months with positive performance attributed to a few specific names. The fund had exposure to Mirant Corp. and though it sold Mirant Mid-Atlantic senior secured notes last month, it still held Mirant senior notes and Mirant Americas Generating Inc. (MAGI) senior notes when the letter was sent out. "Over the course of the month, the company continued to make progress in negotiating a plan with its creditors and confirmed the MAGI creditors would be unimpaired in the bankruptcy. All parts of the capital structure traded higher on these developments," the letter says.
Levco also held a long position in the senior secured bank debt of power company Cottonwood Generating Inc. "Our Cottonwood position is a single asset project loan that was restructured in 2004. At the time the equity sponsor, Intergen (a joint venture between Shell and Bechtel) put new equity into the facility, which basically should allow it to meet its interest costs over the next four years. This allowed us to create the bank debt at a reasonable asset value and create a cheap option on a recovery of the performance of the plant. Recent operating performance has been stronger than originally projected and the paper has been trading higher. We have been adding to this position," the letter adds.
Solutia's senior notes and common stock were the third significant positive contributors. "There were indications that the company was making progress in its negotiations with its former parent Monsanto, regarding the legacy liabilities assumed by the company. This progress was demonstrated by a charge Monsanto took this month based on its expectations of re-assuming certain obligations. This is a key hurdle to allow for the company's emergence from bankruptcy. Perceived progress caused the paper to trade higher." The fund's position in British Energy and Charter Communications also aided performance. Stuart Kovensky, portfolio manager, did not respond to inquiries.
