Basis Capital Fund Files For Bankruptcy in U.S.
WSJ - Australian hedge-fund manager Basis Capital Funds Management Ltd. sought U.S. bankruptcy protection for its Yield Alpha Fund after it suffered big losses as a result of the fallout from the U.S. subprime-mortgage crisis.
The fund, based in the Cayman Islands, sought Chapter 15 bankruptcy protection in U.S. Bankruptcy Court in Manhattan. The Chapter 15 filing was made by the liquidators of the fund, also based in the Cayman Islands.
Under Chapter 15 — added to the U.S. Bankruptcy Code in 2005 — a company or court-appointed administrator may seek a U.S. bankruptcy court’s recognition of a foreign bankruptcy case as the main, or controlling, proceeding. If recognized by a U.S. judge, the filing would effectively halt creditors from seizing the fund’s assets.
Shareholders of the Yield Alpha master fund placed the fund in liquidation in the Cayman Islands, and U.S. Bankruptcy Judge Arthur J. Gonzalez granted the liquidators’ request for a temporary restraining order to block creditors from trying to seize remaining assets.
Without a temporary restraining order, Judge Gonzalez said there is a “material risk” that U.S. creditors could try to seize the fund’s assets, which consist largely of securities instruments backed, in part, by subprime home loans.
The judge set a hearing for Sept. 6 on the Cayman liquidators’ request for a preliminary injunction that would effectively bar investors and other creditors from interfering in the fund’s liquidation. That hearing will be before Bankruptcy Judge Robert E. Gerber.
The Yield Alpha master fund has been hit by the forced sale of some of its assets by secured creditors and the closing out of positions by some investors. Basis Capital earlier this month said losses in its Yield Alpha fund could exceed 80%.
Basis Capital last month said it had appointed accounting firm Grant Thornton LLP as restructuring adviser to organize an orderly sell-down of the fund’s assets.
Other Australian funds, including Macquarie Bank Ltd.’s Fortress Investments and Absolute Capital, have said they face big losses because of fallout from the subprime problems.
More than $50 million of the Yield Alpha fund’s assets are located in the U.S., court papers show. The fund listed total assets and debts each of more than $100 million.
Neither Basis Capital nor Grant Thornton responded to requests seeking comment.
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