Philip Falcone, the hedge fund manager under fire from clients for tying up their cash in a wireless network and other hard-to-sell assets, plans to help finance such bets in the future by selling stock and bonds through a publicly traded shell company.
Harbinger Group Inc., a one-time oil driller that Mr. Falcone's hedge funds took over last year, raised $350 million this week by selling five-year debt at a yield to maturity of 11%. Mr. Falcone plans to use the company's cash and ability to issue stock to buy controlling stakes in industries from agriculture to telecommunications, according to a filing this month.
“It sounds like a backward way to get permanent capital,” said Daniel Celeghin, a partner at Casey, Quirk & Associates. “Here is a pool of money you can manage indefinitely and you don't have to worry about redemptions.”
Making investments through a publicly traded company allows Falcone to raise more permanent capital through bond and stock sales, supplementing funds from institutional investors that can be redeemed. It may also make it easier to meet redemption requests by using the shell company's shares to pay investors, rather than having to divest the underlying, illiquid assets, said David Guin, head of the U.S. securities practice at law firm Withers Bergman in New York.
“Harbinger Group Inc. was not acquired to be a mechanism to deal with Harbinger Capital fund redemptions,” said Jeffrey Zelkowitz, a spokesman for Harbinger. “Rather, HGI is a permanent capital vehicle to house longer-term controlling equity stakes in companies that operate across a diversified set of industries.”
