Shorting the Citadel Bonds?

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We hear that news of Citadel’s debt offering has sparked the idea around some trading floors that it might not be a bad idea to short the bonds. Since this is the first time a hedge fund has issued public debt of this sort, everyone is still feeling their way through this. But the general idea would be to short the bonds as a hedge fund industry hedge—a double hedge, if you will.
“If typical hedge-fund trades come under pressure, Citadel will come under pressure, and if citadel comes under pressure, these bonds will widen for sure,” a source says. “Price talk is L+110bps area, which makes it a reasonably inexpensive hedge.”
One problem with shorting the bonds is that they may be very hard to borrow. Citadel is probably seeking reassurance from the placement agents, Lehman and Goldman, that the bonds won’t be going to investors likely to look for a quick sale or lend them out. Without an investor willing to lend out the bonds for shorting purposes, there may be no way to short the bond directly. The most obvious alternative would be to buy credit default swaps with the bonds as the referenced asset. But we’ve got a creative audience. So come on, gang. Any new ideas on how to short the Citadel bond issuance?

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