Hedge funds are fuelling a booming market in Europe for trading debt that has yet to be issued, as distressed restructurings create new speculative opportunities in private credit, according to a report by the Financial Times.
The latest example is Luxembourg-based packaging group Ardagh, whose proposed $10bn debt restructuring has sparked a frenzy of trading in “when-issued” bonds — instruments that will only come into existence once the restructuring completes. The report cites unnamed sources familiar with the trades as revealing that investors have been paying as much as 110 cents on the dollar.
The trend mirrors recent activity around Altice France, where investors also traded post-restructuring debt before issuance, underscoring how hedge funds are exploiting distressed situations to lock in outsized gains and liquidity.
Under Ardagh’s plan, founder Paul Coulson will hand control to creditors in a debt-for-equity swap that writes off $1.7bn in PIK notes in exchange for equity. Key creditors, including Arini Capital Management and Canyon Partners, are set to become major shareholders, while existing bondholders will inject $1.5bn in new funding.
Hedge funds have already flipped rights to this new debt at hefty premiums, attracted by the 9.5% yield and the prospect of lending to a leaner, deleveraged company post-restructuring. However, dissent from Deutsche Bank and Carronade Capital could still derail the transaction, forcing trades to unwind.
