According to a letter to Yield Alpha investors, the fund has enough cash to repay creditors, even without putting any value on the complex structured credits – mainly collateralized debt obligations, or CDOs – which it holds. The crashing value of these instruments during the summer led to the fund’s collapse, when banks demanded extra collateral against their loans.
Basis attracted close attention this year, as it was the second hedge fund group to see one of its funds collapse because of the US subprime crisis, after the failure of two funds run by US investment bank Bear Stearns. Basis, founded in 1999 by Steve Howell and Stuart Fowler, is still running its Pac-Rim Opportunity fund, but has called in Blackstone as advisers to help split its hard-hit investments in CDOs from its healthy Asian junk bonds.
Mr. Akers said Yield Alpha had $60m of cash thanks to continued coupon payments from the CDOs in which it invested. This was enough to repay creditors who had lodged claims so far, although he cautioned that until the formal process – which begins with a hearing in the Cayman Islands on Wednesday – was complete, the level of claims would not be certain.
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