Price swings on the trades described in the lawsuit marked the biggest-ever percentage changes in those securities, data reviewed by Bloomberg show.
Chatham said at the time that the allegations were baseless and without merit.
The firm’s assets have doubled in the past three years. Over that time, Chatham has sunk even more money into one of its most controversial investments: National Enquirer parent American Media, which accounts for about 16 percent, or $400 million, of the $2.5 billion that Chatham manages in its main fund and related accounts.
Two other old-line media investments, Postmedia Network Canada Corp. and McClatchy Co., have become central to Chatham and its thesis that it’ll make money in an industry others are fleeing.
In all three cases, Chatham bought most of the subordinated bonds, plus stock. Those investments amounted to a bet that the companies would acquire competitors and cut costs. Chatham has been restructuring their debt to give them more time.
Their bonds, though, haven’t suffered. And given the strains in the print-media business, the strong price of the debt is difficult to explain, traders say. Postmedia, where Pecker sat on the board until last August, has posted annual losses for most of the past decade. Its bonds rarely change hands.
Yet its junior bonds offer yields comparable to more senior securities. The notes don’t pay regular interest in cash, a sign of their inherent riskiness. At least five other traders who’ve looked at the bonds say their prices seem too good to be true.
A similar story has unfolded at newspaper publisher McClatchy, which has posted annual losses since 2015. Its bonds staged an improbable rally last year, charting a steady climb over 50 percent from 80 to 125 cents on the dollar. That made it one of the best performing bonds in the world at the time. It even offered lower yields than some blue-chip companies.
“That’s just not how bond math works,” said Michael Terwilliger, a portfolio manager at Resource Credit Income Fund. “I wouldn’t even begin to consider owning it at that level. Something other than fundamentals are playing a huge factor in those bonds.”
In response to questions about the prices, Melchiorre sent a statement through a representative: “We have tremendous conviction in our fundamental thesis on late stage media consolidation in North America and competitors are free to express opposing views.”