Friday, February 29, 2008

Banks Seize Peloton Assets

Lenders have seized assets held by London hedge fund Peloton Partners, LLP. Banks are moving quickly to recoup their money from the troubled borrower. Six banks have seized assets while three are giving the hedge fund time to try and find buyers for the securities.

This week Peloton told investors that it had liquidated a fund that specialized in mortgage securities and Peloton is shutting down their ABS Fund and suspending redemptions in their Multi-Strategy Fund.

Peloton has been in talks to sell some of its holdings but at least one rival money manager, Citadel Investment Group, has declined to buy. Selling its holdings would help Peloton raise money to pay off the loans but banks are in no mood to negotiate with borrowers.

In the past six months, banks and brokers have written down more than $100 billion in sub-prime securities while also dealing with the higher expense of funding. Loans that were provided cheaply in recent years are being reeled back in quickly. However, banks too will find it difficult to find buyers for the assets they seize back.

Bond investors have very little interest in securities tied to the U.S. mortgage market especially as ratings companies increase their scrutiny of borrower defaults. On Friday, Standard & Poor’s put on credit watch with negative implications nearly 2,000 mortgage securities backed by Alt-A loans. Alt-A rank between sub-prime and prime. S&P also recently downgraded 3,839 securities backed by sub-prime loans.

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