With McClatchy, the hedge fund also designed a trade aimed at reaping a windfall through credit-default swaps. Such wagers have come under increased scrutiny from regulators in the last year.
Trump Secrets
Then there’s American Media. Chatham took on more American Media debt in recent months, getting Seaport to arrange a deal after Credit Suisse Group AG got cold feet amid public furor over the publisher’s antics in the 2016 presidential election. American Media now owes debtholders in excess of $1 billion, more than the book value of its assets. Despite the company’s financial distress, its bonds traded near par until December, and after dropping, have been climbing back.
Those zero-coupon bonds maturing in 2024 offered lower yields than five-year U.S. government bonds over several months last year.
For the low-profile Chatham, American Media has become a high-profile headache. After sparking federal prosecutors’ ire for its role in burying Trump’s secrets shortly before the 2016 election, the company has drawn international attention for its war with Jeff Bezos over its exposé of his extramarital affair.
Chatham’s tabloid publisher possesses a “treasure trove” of Trump’s secrets, his former fixer Cohen told Congress last month.
Pressure has been building. New Jersey, which has generated a more-than 12 percent annualized return on its investment, is entitled to withdraw $355 million from one of Chatham’s funds at the end of this year. The state has said it’s exploring its options in light of Bezos’s claim that American Media tried to blackmail him.
The California state pension system has been planning to exit all of its hedge fund investments and has been asking Chatham to sell holdings so it can return about $200 million.
Chatham investors say that even if authorities go after the National Enquirer for allegedly extorting Bezos or for catch-and-kill tactics, American Media is a valuable company, with several magazines it could sell to raise money for creditors.
Grimstad knows what it’s like to be under a tabloid-like glare. While he was wrangling with Chatham, news trucks were parked outside his house for days. The ugly litigation with the tech executive was resolved with a less-than-remorseful apology and a multimillion-dollar payday for Grimstad.