Silver Point Capital

His art is akin to the art of silver-point, which, as is known, is an art of directness of touch, and final in the instant of execution, leaving no room whatever for accident or untoward excitement of nerve.(“Adventures in the Arts” by Marsden Hartley.)

Silver Point Capital was established in 2002 by Goldman Sachs alums Edward A. Mule and Robert J. O’Shea. Today they manage approximately 8 billion dollars with a staff of over 100 employees in Greenwich, Connecticut.

Prior to forming Silver Point Capital both of the founders had an impressive career track at Goldman Sachs.

After starting in the early nineties, by 1997 Mr. O’Shea gained the title of Head of loan syndication and trading, and in 1998 became the Head of high yield and bank debt of Goldman Sachs. As early as 2000 it was rumored that he will be leaving Goldman Sachs for another venture, by then an obvious loss for Goldman Sachs as Mr. O’Shea had built a market reputation as an expert in distressed and bank debt.

Mr. Mule was a managing director and partner at Goldman Sachs. More specifically, he was the joint Head of the firm’s special situations group which exclusively concentrated on distressed debt. He was also a member of an internal committee known as Profit Enhancement which focused on cost cutting in order to turn around failing companies.

When Messrs. Mule and O’Shea joined forces in 2002, their combined acumen logically led them to mandate their fund as a credit and special situation concern. While the palpable focus was (and continues to be) indeed on fixed income and credit derivatives – mainly distressed debt of large-cap and mid-cap companies — it also had the freedom to invest in select equities to execute its strategy (till today the firm invests about 10% of its capital in equities, or at least ends up close to that amount perhaps as a result of convertible debentures being exercised). Akin to their investing experience at Goldman Sachs, the firm tirelessly seeks complex situations where they can capitalize on their fundamental analysis skills and proactive style of investment management, especially with restructuring and distressed situations.

Indeed, in its year of founding itself, Ed Mule articulated the investment possibilities in the recently bankrupt company of K-Mart. Although Silver Point Capital never invested in K-Mart, this was a telling indication of things to come: High-profile deals in troubled (often household name) companies.

Although concentrating often in sectors such as broadcasting, gaming, automakers (Dana and Delphi) and naturally banking (especially in the aftermath of the financial collapse, e.g. Lehman and CIT), the fund through its illustrious history of deal-making has gone to any sector where they find opportunity, including Hostess the baking company popular for its Twinkies.

In 2005, Silver Point Capital got tangled in an open dispute with AIG and Post Advisory Group following FiberMark’s filing of Chapter 11 bankruptcy. Along with Silver Point Capital, AIG and Post Advisory group owned an interest in FiberMark’s debt. Since Silver Point controlled most of the debt, they were seeking to buyout the claims of AIG and Post. In return, AIG and Post tried to achieve veto power over Silver Point and accused Silver Point of insider trading using information they had obtained as a member of FiberMark’s creditor committee. As the bankruptcy proceedings became antagonistic, an independent examiner was brought in to scrutinize the case. The examiner’s report not only concluded that the accusation was false but went on to state that AIG and Post Advisory Group had fabricated the insider-trading charge to gain bargaining leverage over Silver Point. Finally, AIG and Post sold their entire claims to Silver Point at a discount, and Silver Point established itself as a force to be reckoned with in the high-stakes of distressed debt universe.

By July 2008, Silver Point Capital emerged as one of the top TV station owners in the country as it fully bought out two TV stations groups out of bankruptcy — Granite Broadcasting and Communications Corp. of America. Also, it started to buy Young Broadcasting’s distressed debt. This is a signature strategy of the fund where they see and acquire more than one distressed situations in particular industries, thereby leveraging their analysis.

Similarly, in September 2008 Silver Point Capital LP acquired shares of Common Stock of Dana Holding Corp. Later, in July 2009 the firm bought up distressed debt of the biggest auto component maker Delphi. This time the firm was one of the lenders of a syndicate of large hedge funds and private equity players.

In 2009, Silver Point Capital joined hands with other major players such as Baupost Group and Oaktree Capital, to purchase up to 40% of CIT’s bonds. The deal terms were dubbed as almost risk free by many analysts, the reason being the Fed was clearly done with its bailouts, leaving ailing finance companies to the mercy of the market lenders.

On the equity side, as of end of 2011, Silver Point Capital had 800 million dollars in assets. The top four holdings accounted for about 99% of the portfolio. They were Delphi, AIG, Sunoco and Torch Energy. The latter two (although less than 10% of the portfolio) indicate they are now seeing opportunity in the energy sector and, considering their track record, one should pay heed to their latest foray.