As the past few weeks have shown, bond traders have neither morals nor memory, at least when it comes to buying and selling Latin American sovereign debt. So just a few weeks after doing some of the former in the form of a $3 billion block of controversial new Venezuelan bonds that may be propping up that country’s less-than-cuddly government, Goldman Sachs is now doing some of the latter.
The Wall Street firm’s asset-management arm sold at least $300 million face amount of the bonds to a small group of hedge funds in recent days through boutique brokerage Liquidity Finance, a person familiar with the trades said.
The deal is great for Goldman in all sorts of ways. First, it got about a cent-and-a-half on the dollar more than it paid for the bonds, so: instant profit! Second, it creates a secondary market for the bonds, trading in which should push prices up even further—indeed, it already has, with other banks now quoting the bonds at three cents more on the dollar than Goldman paid. Third, it comes at the end of the quarter, meaning that Goldman Sachs Asset Management can mark up the remaining $2.5 billion or so worth of bonds its funds still own when sending out those performance reports to investors. Fourth, it takes some of that unpleasant spotlight off of Goldman and puts it onto a group of investors who don’t much care if their names are dragged through the South American mud. And fifth, it opens the possibility that GSAM can get out of the position before Venezuelan President Nicolás Maduro is forced from power and opposition leaders can make on their promises to repudiate the debt, should either of those things happen.
Which those new hedge fund buyers aren't worried about! (At the least the second part.) You see, they’ve had their lawyers go over things, and are pretty confident they could Paul Singer the hell out of a new Venezuelan government that refused to pay them.
Hedge funds that bought the bonds from Goldman hired lawyers to compare the contracts of the new debt and found them to be virtually identical to those of pre-existing debt, giving the investors confidence that their claims in a default would be the same, the person said.