“What we’re not going to be doing is buying things in an auction format with the idea that we’ll be selling them three years later,” Boehly said. “That’s just not part of our ethos.”
Guggenheim was still a startup when Boehly, who’d worked at Credit Suisse Group AG and JH Whitney & Co., was hired in 2001. He built its credit-investing business, was named president in 2006 and grew wealthy as Guggenheim expanded in asset management, insurance and investment banking. No one outside finance paid him much interest.
Dodgers Deal
That changed in 2012 when Boehly joined his then-boss, Guggenheim Chief Executive Officer Mark Walter, basketball legend Magic Johnson, former Atlanta Braves President Stan Kasten and two others in a blockbuster deal for the Dodgers. The group paid a record $2.15 billion for the baseball team, media rights and associated real estate. Boehly has a 20% stake.
Guggenheim soon faced questions from clients and regulators over the financing its insurance affiliates provided for the purchase. Boehly left in 2015 to form Eldridge. He stayed on Guggenheim’s board and kept his stake in the firm until last year.
Security Benefit was one of the companies Boehly brought with him from Guggenheim and insurance became a central piece of the Eldridge puzzle. Instead of assets to flip, Boehly and his partners seek out businesses with stable cash flows they can securitize. Security Benefit then buys parts of that debt.
Unusual Approach
Such vertical integration is a departure from industry convention, and to some it could resemble self-dealing. Most insurers buy investment-grade corporate bonds issued by unrelated parties and allocate only a small percentage of their assets to alternative credit. Security Benefit, by contrast, has about 60% its balance sheet in debt secured by corporate assets, intellectual property and media rights, aircraft and rail cars, equipment leases and real estate, much of it originated inside the Eldridge family.
The advantage, Boehly said, is twofold: Security Benefit knows more about the credit quality of its affiliates; and Eldridge, as the parent, can ensure those companies make their payments. He added that Security Benefit has to meet regulatory standards set by the Kansas Insurance Department and it only invests in debt rated by a third party.
“Our options would be to take Security Benefit’s balance sheet, allocate the activity out to a bunch of different managers who aren’t aligned with us the same exact way,” Boehly said.