Foxhill Capital Partners LLC is an SEC registered value-oriented event driven hedge fund with particular expertise in distressed and special situations. The firm is based in Juno Beach, Florida. It was established by Neil Weiner, CIO, in 2006, with the launch of the Foxhill Opportunity Fund LP. In addition to the Fund, Foxhill manages an array of Separately Managed Accounts customised to meet specific client objectives.
The Fund looks across the entire corporate capital structure for the best risk-reward opportunities as companies engage in restructuring. By combining fundamental research with the use of options, derivatives and futures to carefully hedge credit, commodity and equity residual risk, Foxhill focuses on creating positions with a margin of safety to mitigate permanent impairment of capital.
“Our strategy focuses on distressed and stressed/high yield events. Where we find our niche, and what we think our greatest value-add is to investors, is focusing on the small-cap, mid-cap space where we are able to find opportunities that the large event-driven managers regard as too small,” says Weiner.
Given the strength of the US economy and with the capital markets being so open there has been a relative dearth of stressed and distressed opportunities, but thanks to the tremendous amount of investment discipline, Weiner has found entry points in around 10 per cent of the companies the team analyses.
“We shy away from situations where the investor is at a disadvantage, such as covenant-lite term loans. It’s not easy these days since issuers tend to have the upper hand so we take time to find situations where we are self-protected,” explains Weiner.
To avoid the risks of being lured by covenant-lite deals, Weiner looks exclusively for refinancing situations in the upper part of the capital structure “so we can be in the driver’s seat when it comes to negotiating with the company.”
“When you buy in distressed situations it tends to be when things look the ugliest; that’s when people shy away. But if we really believe in the underlying value of the business we will continue to buy, even if the price is lower as this might just be for a technical reason. I always want liquidity to be able to add to a position on the way down and be able to bid a seller down; I never want to be that forced seller,” comments Weiner.
Weiner has concerns over how the next down cycle will play out given that a lot of debt has been issued with little or no covenants, meaning investors are not going to have many rights as companies enter distressed situations.
These companies, will, he says, effectively operate as ‘zombie companies’ because investors won’t have the legal ability to restructure them because of fewer rights. Indeed, Bloomberg recently reported that companies involved in 50 large M&A and LBO transactions reported leverage ratios that were 2.9 times higher than forecast one year after their acquisition, rising to 3.6 times higher after two years.
“These zombie companies will be able to maintain their interest expense but they will remain over-levered and recoveries in the upper part of the capital structure will be lower than we’ve seen in previous cycles,” opines Weiner.
On winning this year’s award, he concludes: “We are pleased to be recognized again by the hedge fund community for our performance. Our focus on under covered and undiscovered has continued to differentiate our approach and portfolio.” n
