Macaskill on markets: Hovnanian highlights Blackstone’s risky business

Blackstone-owned GSO Capital’s provision of financing for building firm Hovnanian, on condition that it defaults on debt in order to trigger a payout on default swaps, highlights the reputational risks for investors as they supplant banks in setting the agenda for the credit markets.

The trade could cause conflict not just with bank dealers and rival investors who worry that engineering the exercise of default swaps could undermine the functioning of the derivatives markets that are used to hedge and measure credit exposure, but also within the Blackstone group.

A separate unit of Blackstone owns a stake in a hedge fund called Solus Alternative Asset Management that launched a legal battle to prevent the GSO Capital trade for Hovnanian from closing.

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