Amaranth Advisors managed to sell all its loan assets without causing a ripple in the market, according to dealers. The paper, that moved through all the major dealers, has already been placed with institutional buyers. Traders said the fact the hedge fund was able to sell a large amount of loans without causing much disruption is a testament to the liquidity in the loan market, which historically has not been considered very liquid on a comparative basis. The Conn.-based hedge fund sold the assets after announcing $6 billion in losses stemming from natural gas futures trades.
The size of Amaranth's loan portfolio could not be determined, but a trader said the hedge fund was also not a big player in any one name. The hedge fund was able to shift the loans a mix of distressed and par paper without selling at much of a discount. "There is tons of liquidity. Because they had liquid positions and the loans were good, they were able to sell out easily," said a trader.
A trader who said he sold two large blocks of Amaranth's distressed paper, said the hedge fund barely moved the market when it offloaded its loan assets. "It shows how strong the market is," he said. "It is partly because the stock market is doing well. Except for the autos, there is a strong background for credit right now."
Dealers acknowledged the professionalism with which the fund sold the loans without moving the market. "They did do an efficient job of not disrupting the market," said a trader. What helped lessen the impact was the fact the fund starting selling paper one week before news came out about its troubles. This lessened the panic that could have arisen if the market was caught by surprise.
The trader pointed out how this stands in stark contrast to the chaos that ensued when Refco Group collapsed in October last year. Refco's bank debt and bonds plunged after the firm's CEO, Phillip Bennett, was suspended from the firm under allegations of fraud (CIN, 10/14/05). Its bonds fell more than 40 points to 27-28, while its bank debt fell 33 points to 75. "There was a much bigger panic with Refco. The selling here is much more orderly," said the trader.
The firm also sold its bond investments, although its exposure to that market is much smaller than in the loan market, said a dealer. "It took them 5 to 10 minutes to sell the bonds," he said.
Amaranth sold its assets after energy trader Brian Hunter lost billions by misgauging the natural gas futures market. JPMorgan and Citadel Investment Group have reportedly bought the firm's energy portfolio to forestall a closure of the fund. Additionally, Citigroup is reportedly looking to buy at least a stake in the firm. An Amaranth official did not return a call.