SAN FRANCISCO (MarketWatch) — Citadel Investment Group, Ken Griffin’s $12 billion hedge fund firm, agreed to buy bankrupt subprime mortgage lender ResMAE Mortgage Corp. on Tuesday, topping Credit Suisse in an auction.
ResMAE is one of several subprime lenders to have collapsed in recent months. Subprime loans are offered to borrowers with spotty credit and lower incomes. The sector has descended into crisis as interest rates climbed from record lows and delinquencies increased. See full story.
ResMAE, which was a top 20 subprime mortgage lender, filed for bankruptcy in February. In its filing, the firm said it planned to sell most of its assets to Credit Suisse
for $19 million. See full story.
However, Citadel offered to pay $22.4 million, plus a break-up fee of up to $1.5 million, for the company. The deal was announced by Citadel and ResMAE in a statement on the mortgage firm’s Web site.
In a separate transaction, Citadel purchased ResMAE loans for 98.5% of their face value, or roughly $160 million.
“Our financial support of ResMAE during this reorganization will allow one of the industry’s leaders to remain appropriately capitalized to meet the needs of this very important market,” Citadel’s Griffin said in a statement.
“The team at ResMAE has stayed together during a very difficult time and the company is well positioned to meet the challenges facing the industry head on and to become an industry leader in the years to come,” he added.
The deal is the latest sign of how the hedge fund industry is expanding into new areas in search of returns.
Citadel started as a $4.6 million convertible arbitrage fund in 1990, but now has seven main areas of focus including equities, fixed income and energy trading. The Chicago-based firm also has a principal strategies unit that specializes in undervalued companies involved in mergers and acquisitions, reorganizations and litigation.
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