Were Delphi Bondholder's Dumb, stupid, or just Greedy ?

Discussion in 'Trading' started by mahram, Oct 9, 2005.

  1. Ok delphi debt was trading at the high 70 and 80's on wednesday, thursday, and even low 70's on friday close. I know alot of hedgefunds were betting that delphi would get a deal. They were spouting GM cant afford a 6 billion dollar hit and so on. The government wont allow it. It would hurt the entire industry. And from the bond prices, which is almost unprecedented were predicting a deal,before the bankruptcy filing. By next week, delph debt will be trading pennies on the dollar. So heres my question, are bond traders dump or just stupid. You have SAC capital buying up debt in Northwest airlines and Delta, saying they wouldnt go bankrupt. You had George Soros buying up United debt before they went bankrupt, thinking they wouldnt. And now you have all of these suppovily ivy league ,high tech, top notch funds all going delphi wouldnt declare bankruptcy by buying up its debt. And no BS, why dont you have their type of money, delphi debt was trading at 70-85 cents on the dollar. And alot of funds and traders are obviously going to get hit big time. So why are bondholders consider so smart, when they were the ones who got the most blindsided :D
  2. Chagi


    Don't some hedge funds do this type of thing as pair trading when a company is in distress, e.g. short the stock and long the bonds?
  3. empee


    it could also be risk reward, if they figure out that out of 1 out of 4 will come thru, and the payback is 5:1, then its worth doing. Just playing the odds I would think.
  4. yeah but then the bonds would have been trading at bankruptcy levels, but they were trading like nothing was wrong, in fact the bonds were pricing in positive outcome for delphi. As you know the amount of debt Delphi had over 21 billion dollars out there the largest brokerages and hedgefunds were involved. Right to almost the last minute delphi bonds were still pricing in something positive. Bonds should open at 15 to 30 cents on the dollar, making losses for bond holders at over 15 billion dollars. For those who could find buyers, and those who have senior debt. I just find it wierd, is it because so many experienced people who had decades of experienced are retiring,and you have younger trader and hedgefund people. Or is it, its just becoming so hard to find performance on a large scale, traders, and hedgies are willing to take on larger and larger risk. Even thought, its very remote.

  5. mnahram,

    Seriously, lots of hedge funds and mutual funds lose money ,

    Where do you think the successful hedge funds make their money from?

    Most people who lost money and are successful probably only put a small size on the bet.

    But yes, it is funny how retarded $15 billion from all these investors can be.
  6. well we are talking about the debt right, most of the bonds before mid friday were trading at anywhere between 75-88 cents on the dollar. Thats not a very good risk reward. You would expect like any company near bankruptcy, the bonds would be at 30-40 cents on the dollar, or a company on the teters. You could look up mirant, delta, northwest, united, and usairway. Were not talking about small hedgefunds or traders, but we are talking about the largest brokerages and hedgefunds out there. Since delphi had over 21 billion dollars in debt out, you can bet alot of big brokerages and hedgefunds were hurt. I feel sorry for the traders that put on that bet, you probably have senior management screaming, and probably some head chops tommorow. Were talking about bonds going from 88 cents to 20 cents-30 cents on the dollar. And billions of dollars gone in one day. Hopefully they hedged a bit, but looking at the high bond price, some traders were probably arragont enought to think a bankruptcy would never happen.

  7. lol, but still were talking about the "smartest of the smartest people in the room". People who have access to every pieace of research, ceo's, brokers, you name it they got it. If these bond traders were so smart how come the bonds werent pricing in a bankruptcy, at those levels, you know somebody was extensivly net long on delphi debt. Coolweb can you imagine coming into the office one day and telling the senior traders or your partners, sorry guys we lost 15 billion on delphi bonds :D

  8. If the bonds open 15-30 cents on the dollar I'd have to agree.

    Let's see is that happens.

    And while folks throw around the business of shorting stock and buying bonds, I'd like to see a real example of how you would do that and not incur huge risk and losses if the stock happened to go UP.
  9. beats me but on paper those guys who do what you, look at themselves as unbeatible. It will be interesting to see what happens tommorow, its going tobe rock and roll time in the credit markets. Especially if you have a couple of large funds, who were net long delphi bonds, and they end up in trouble.

  10. I doubt if any fund run by a competent manager is getting in 'trouble' here. If so, then they are imbeciles.
    #10     Oct 10, 2005