Blackstone, Solus settle Hovnanian credit default swap dispute

Agreement ends hedgie gamesmanship over the NJ builder's distressed debt

New York /
May.May 31, 2018 01:01 PM

From left to right: Jon Gray, Ara Hovnanian, Chris Pucillo (Credit: Pixabay, University of Miami, Getty Images, and Salt Conference)

A showdown between a lender and a gambler over a New Jersey and South Florida home-construction empire has ended.

Solus Alternative Asset Management withdrew its lawsuit against Blackstone Group subsidiary GSO Capital Partners on Wednesday, after reaching a settlement on claims that GSO engineered a debt default by struggling builder Hovnanian Enterprises.

In 2017, Hovnanian, which had not made a profit since 2014, borrowed money from Solus to pay off other debts nearing payment deadlines. But Solus sold a number of credit default swap contracts on that debt, including to GSO, which bought them in a bet that Hovnanian would default on its debts to Solus.

With Hovnanian in need of a refinancing, GSO stepped in as potential new lender, but with one major condition: GSO needed Hovnanian to default on some of its debt so it could reap millions in profits from its credit default swap contracts with Solus. This triggered Solus’ lawsuit in which it accused GSO of engaging in illegal market manipulation.

Both Blackstone and Solus released statements saying they were happy to have resolved the suit.

“We are pleased that Hovnanian CDS will now reflect the actual creditworthiness of the company,” said Solus CEO Chris Pucillo in a statement cited by Bloomberg.

The confrontation between GSO and Solus is just one example of what many money managers see as a growing problem of manipulation in the derivatives market.Some major hedge funds, like Elliott Capital Management and Apollo Global Management, have organized to push for more regulation of so-called “manufactured defaults.” [Bloomberg] — Will Parker


Related Articles

arrow_forward_ios
Donald Trump, Cy Vance and Trump Organization CFO Allen Weisselberg (Getty)
Manhattan DA narrows focus on Trump Org CFO
Manhattan DA narrows focus on Trump Org CFO
(Getty / Photo Illustration by Alison Bushor for The Real Deal)
Five reasons Andrew Cuomo is doomed
Five reasons Andrew Cuomo is doomed
The person behind the prank website is still anonymous. (Getty)
Phony website falsely claims REBNY cancels rent
Phony website falsely claims REBNY cancels rent
(iStock/Illustration by Kevin Rebong for The Real Deal)
To boost economy, NYC will invest in rapid Covid test
To boost economy, NYC will invest in rapid Covid test
U.S. District Judge John Campbell Barker, who was appointed by former President Donald Trump, ruled the eviction moratorium to be unconstitutional. (Getty, Texas Attorney General)
National eviction moratorium ruled unconstitutional, but remains in place
National eviction moratorium ruled unconstitutional, but remains in place
(iStock/Photo Illustration by Kevin Rebong for The Real Deal)
Dubious gentrification study will backfire on New York City
Dubious gentrification study will backfire on New York City
From left: Scott Stringer, Shaun Donovan, Maya Wiley, Andrew Yang, Kathryn Garcia and Eric Adams
Where mayoral candidates stand on real estate
Where mayoral candidates stand on real estate
Mayor Bill de Blasio and City Council speaker Corey Johnson (Getty)
De Blasio admin opposes Corey Johnson’s land use overhaul
De Blasio admin opposes Corey Johnson’s land use overhaul
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...