Arini Sells Nearly $800 Million of Debt After Banks’ Margin Calls

Key Facts

Arini Capital Management sold about $800 million of debt holdings in recent weeks, partly in response to margin calls from banks it works with, according to The Wall Street Journal. The newspaper said the fund was selling more liquid investments to meet margin requirements tied to credit-default swap indexes and other leveraged positions. Those indexes track European corporate debt, according to the report. The sales came as the flagship fund suffered heavy losses in October, linking the asset liquidations to pressures on the fund itself. Reports did not specify a date for the sales or a specific deadline for the margin calls.

According to Bloomberg, the flagship fund fell 12% in October through the 23rd, bringing its losses since the start of the year to about 26%. Its assets under management stood at $7.5 billion at the end of July, according to the report. In an earlier account of the flagship fund’s performance, The Wall Street Journal said its portfolio, which manages about $7 billion, had lost more than 20% since the start of the year through mid-October, with further declines expected by month-end. The figures differ in their measurement dates: Bloomberg’s figure tracks performance through October 23, while the newspaper’s figure covers mid-month and its projection for month-end. Bloomberg also reported that the flagship fund lost 6.9% in the first half of October, after declining 15.7% through September, citing an investor memo it had reviewed.

Bloomberg attributed some of the losses to concentrated investments in distressed telecom companies, including Altice International, Optimum Communications, Virgin Media and Brightspeed. The report said concentrated positions in companies facing credit pressure left the portfolio’s performance more exposed to declines in the value of those holdings. In the broader market, Bloomberg reported that the average risk premium on U.S. high-yield debt reached its highest level in 17 months, while primary markets recorded their biggest wave of deal withdrawals of the year through October 24. The agency said parts of the high-yield market had seen a rapid downturn as investor concern mounted over more vulnerable companies. These developments place Arini’s sales amid widening pressure in some credit markets, without on their own establishing a systemic impact.

Arini received offers from Pacific Investment Management Co. and Oaktree Capital Management to buy some of its high-yield debt holdings, according to Bloomberg. The report did not say that a sale of those holdings had been completed, while trading desks were discussing the disposal of additional positions with potential buyers. Reports said the firm had already sold some positions in large companies with speculative-grade credit ratings. Potential offers provide a route to liquidate other holdings, but reports did not specify their size or terms. Bloomberg said further sale talks were still under way.

Arini managed total assets of $22 billion on August 31, according to a company statement, across strategies including long and short credit, structured and distressed credit, direct lending and asset-based finance. That figure applies to the entire firm, not the flagship fund, whose assets Bloomberg reported at $7.5 billion at the end of July. The Wall Street Journal said about one-third of the firm’s assets were invested in collateralized loan obligation funds, whose performance remained strong. The newspaper also reported that the firm had grown from a $1.3 billion specialist hedge fund into a $22 billion alternative asset manager. The differing performance of the strategies shows the breadth of the firm’s business relative to the size of the fund whose losses led the reports.

In direct lending, Arini announced on October 21 the final close of its first fund, targeting more than $4 billion in deployment, including expected leverage. The firm said total deployment in the strategy was approaching $2 billion, spread across multiple sectors and geographies. Founder Hamza Lamsouger described the portfolio as having conservative leverage metrics and strong loan documentation, and said deal flow came from diverse channels. This activity differs from the high-yield debt positions linked to the flagship fund’s losses and margin calls. Against the backdrop of changes at the firm, Gavin Yates, Arini’s former head of U.S. business, left in August and was expected to establish a distressed-debt team at Citadel the following year, according to the report.