Trump World?

http://www.bloomberg.com/news/articles/2016-07-19/clash-of-hedge-funds-redefines-distress-in-lightstream-debt-swap?cmpid=yhoo.headline&yptr=yahoo

Donald Trump is a President for our time. The foregoing item describes the general growth in debt litigation and, no surprise, the central role played by the private equity industry. More specifically, it identifies Apollo (APO-$16) as a hardball negotiator. Again, no surprise.

APO is operated by former Drexel Burnham Lambert leaders and their playbook is both the same and different from the circa 1990 S&L crises that coincided with DBL failure. The same is that income is generated by lending and re-lending commissions, together with transaction gains and losses. A key difference is that APO also earns management fees on much of the arranged debt and insurance income.

Where DBL issued “junk” bonds, often to newly un-regulated savings and loan institutions, APO has reached directly to retail investors through private label, high yield income funds. Is this enhanced “verticality” a good thing?

It is today, as investors seek current income. The challenge will come when interest rates rise and current investors look elsewhere for higher returns and credit quality deteriorates. Also, the consequences of APO’s complex business structure and the possibility of fiduciary challenge make it a risky bet.