Varde Partners is poised to rake in over $50 million in profits from well-placed bets on Credit Suisse Group AG’s debt and equity.
(Bloomberg) — Varde Partners is poised to rake in over $50 million in profits from well-placed bets on Credit Suisse Group AG’s debt and equity.
Late last week, the alternative asset manager amplified an existing trade it had placed on the Swiss bank by shorting its equity, while accumulating unsecured bonds in its holding company and operating company, according to people with knowledge of the matter. Varde is poised to lose some money on so-called Additional Tier 1 securities, but all in, its positions delivered a combined return of more than 20%, said the people, who requested anonymity discussing confidential information.
A spokesperson for Minneapolis-based Varde declined to comment.
Varde emerged as one of the winners, at least in most of its trades, in a frenzied week that culminated on Sunday, when the bank agreed to be sold to UBS Group AG for 3 billion Swiss francs ($3.3 billion).
Over the weekend, Varde ramped up bets on senior unsecured bonds of the holding company, as it became clearer that Swiss authorities were pushing for a combination with Credit Suisse’s crosstown rival, one of the people said. The sale to UBS spared losses for most bondholders, except for $17 billion of Additional Tier 1 bonds, the riskiest of all debt classes, which were wiped out by the Swiss regulator.
By Monday, Varde closed out its short equity position. It still holds senior unsecured bonds and is assessing options with regards to its AT1 investment, the person said.
A number of hedge funds are buying AT1 claims trading at a fraction of face value in a bet that they will win a lucrative payment, potentially through litigation. Some investors are in dialogue with law firms and are considering litigating in Switzerland, the UK and US.
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