John A. Levin & Co.'s Levco Debt Opportunity Fund was up 0.53% last month benefiting from bank debt positions in Owens Corning and Exelon Boston. The fund also had exposure to MCI and Level 3 Communications, according to a letter sent to investors.
Exelon bank debt holders are benefiting from an auction process that has taken the debt from the high 70s early last year to approximately 112. Reportedly, Longacre Management is also among the funds with a position. The hedge fund also re-established a position in Owens Corning following the October substantive consolidation ruling. It now appears that the District Court could overturn the decision and the bank debt has rebounded as a result.
One position that did not perform well last month was a capital structure arbitrage play in Level 3. The fund had long exposure to the company's senior secured bank debt and short exposure to the senior unsecured notes. Level 3 reported an operating loss in January that caused the unsecured notes to trade down roughly 10 points, while the bank debt remained stable. Stuart Kovensky, portfolio manager, declined to comment.