Marathon Getting by on Malls, Leases Amid Distressed Funk

Marathon Asset Management LP’s Bruce Richards says the firm is turning to German malls and airplane leases to make money while the distressed corporate debt it usually buys is in short supply.

The hedge fund, which manages $12.5 billion, has bought non-performing commercial real-estate loans in Germany as banks retreat amid tighter regulations and capital controls, Richards, chief executive officer and co-managing partner of New York-based Marathon, said yesterday at Bloomberg Markets Most Influential Summit in New York. The firm is also making leases to borrowers like American Airlines Group Inc., he said.

“We’re stepping up our activity now because this void is in place,” Richards said in a Bloomberg Television interview from the summit. Marathon bought the underperforming debt secured by controlling stakes in German shopping centers at between 30 cents and 50 cents on the dollar, he said later in a panel discussion.

Josh Freed, a spokesman for Fort Worth, Texas-based American Airlines, declined to comment.

Marathon shifted focus to alternative investments, including municipal debt, as demand for distressed corporate securities from other yield-seeking investors pushes up prices, leaving little room to profit. Standard & Poor’s U.S. distress ratio, which tracks troubled borrowers, declined to 5 percent this month from 5.4 percent in August, according to a report published yesterday by the ratings firm.

Puerto Rico

The firm has invested in Puerto Rico’s municipal securities, including power bonds, and is involved in talks to restructure some of the U.S. territory’s debt, he said. The power authority, with $8.3 billion of obligations, must file a debt-restructuring plan by March 2 as part of an agreement with bondholders.

Marathon also bought from a Spanish bank debt of ITR Concession Co., the operator of the Indiana Toll Road, a public-private partnership that filed for bankruptcy, according to Richards.

Marathon is raising $500 million for a new fund that allows it to move into the direct-lending business once dominated by banks, a person with knowledge of the matter said earlier this month. The Structured Products Strategies Fund will make commercial real estate loans, buy and lease commercial equipment and invest in mortgage-related assets created before the 2008 financial crisis.

Hedge funds themselves are partly to blame for higher prices in their once choice securities, Howard Marks, chairman of Oaktree Capital Group LLC, said in a Bloomberg Television interview from the summit. More and more of them means that “the adroit hedge fund” can no longer gobble up the “bargains” larger money managers leave behind, he said.

“Now it’s harder and harder to find real bargains,” Marks said.

Before it's here, it's on the Bloomberg Terminal.