Goldman at one point toward the end of last year had accumulated credit-default swaps and bonds tied to Hovnanian that added up to a roughly $200 million position. Yet the bank also is concerned about what will happen to the broader market’s role providing insurance on debts, if the deal emboldens more investors to engineer events triggering payouts. Goldman Sachs is one of the biggest dealers in the space.
As the bank began seeking a way to rein in what it may owe Blackstone, managers within the investing behemoth grew peeved. GSO has maintained that it put together a deal that promised the best outcome for a distressed company, Hovnanian, and that those losing are sophisticated players.
In January, hedge fund Solus Alternative Asset Management slapped GSO with a lawsuit alleging fraud and manipulation. Like Goldman Sachs, Solus had found itself liable for payouts on the Hovnanian swaps.
Earlier this year, a judge refused to grant a temporary order to block the transaction, but Solus continues to fight the case in court. In a newer twist, the market for the derivatives has moved on talk that firms including Goldman Sachs and Solus are planning to drive up the price of Hovnanian debt, potentially curtailing the payout to GSO.\
This article was provided by Bloomberg News.