Is Kyle Bass the New John Paulson?
According to the book, Bass' Greek debt CDSs would net him $700,000 on $1,100 if Greece defaults — in short, he stands to multiply his investment by 650.
Bass was one of the only hedge fund managers to have profited from the sub prime crisis in 2008. Now his attention has focused on the debt problems in Europe and Japan.
Last summer Kyle Bass disclosed that his portfolio had 10-15% of his hedge funds assets on a bet that Japan or European countries (small countries) will have a funding crisis and have to restructure. His other investments are 25% U.S. bank debt, 17% U.S. liquidations, 23% U.S. high yield, 35% U.S. mortgages. Bass only invested in special situation debt and not stocks. At the time he said, "Given my outlook on the world, I don’t know how I can be long stocks.”
Many investors will only focus Bass' outsized gains in European debt. However, his bearish stance on Japan has most likely been a painful position over the last year. First of all, the Japanese yen has surged over 12%. Secondly, Japanese bonds have not fallen as Bass expected. Japanese 10-year yields are only 1% and there has been a rush into Japanese bonds as a safe haven. Both Japan and U.S. bonds have skyrocketed over the course of this summer.
One of the only publicly available stock picks that Bass disclosed was that he owns 8.4% Seahawk Drilling (HAWK). He purchased 1 million shares between Jan. 1, 2011 and Feb. 15, 2011. The stock lost almost 50% on February 11 and that is most likely when Bass established his position.[b][/b]
Seahawk is a leading jackup driller in the Gulf of Mexico. It owns and operates 20 jackups located in the U.S. They provide contract drilling services to the oil and natural gas exploration industry in water depths of up to 300 feet and drilling depths of up to 25,000 feet.
However, Seahawk’s liquidity and revenue generation have been adversely affected by the dramatic slow-down in the issuing of shallow water drilling permits in the U.S. Gulf of Mexico following the Macondo well blowout. The continued low prices for natural gas have also impacted the company. However, shares of HAWK now trade at $1.15 as it teeters on the edge of bankruptcy, having fallen from recent highs of over $7.