Silver Point Capital’s Bullish Q1 Moves Include New Stake in Embattled Drugmaker Valeant

Silver Point Capital L.P. is a Connecticut-based credit and distressed debt firm founded by two former Goldman Sachs partners, Edward A. Mule and Robert J. O’Shea. The asset manager was founded in 2002 and was named the top-ranked hedge fund in 2013, according to the annual Hedge Fund Report Card survey from Institutional Investor’s Alpha. The respondents of this survey are asked to rank hedge fund vehicles, according to eight criteria, which include alpha generation, risk management, alignment of interests, transparency, infrastructure, independent oversight, liquidity terms and investment relations. Silver Point ranked second a year later, earning an “A” grade in seven of the eight Hedge Fund Report Card categories. “They are very good at understanding the credit markets and finding opportunities, especially opportunities not evident to a lot of the market”, said one investor in the not-so-distant past. Having this in mind, Insider Monkey decided to have a look at several bullish moves made by the Connecticut-based investment firm during the first quarter of the year.

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

#5. American International Group Inc. (NYSE:AIG)

– Shares owned by Silver Point Capital as of March 31: 1.87 Million

– Value of Silver Point Capital’s holding as of March 31: $100.80 Million

Silver Point Capital upped its position in American International Group Inc. (NYSE:AIG) by 337,000 shares during the first three months of 2016, ending the March quarter with 1.87 million shares valued at $100.80 million. The increased stake accounted for 11.5% of the asset manager’s entire portfolio at the end of March. The U.S. insurer was under intense pressure in the second half of 2015 from activist investor Carl Icahn, who wanted AIG to divide its mortgage, life, and property and casualty insurance divisions into three separate companies. Although AIG was not necessarily buying what Mr. Icahn was selling, the insurance behemoth has been busy getting smaller and simpler. Earlier this year, the insurer increased its boardroom by two members and appointed one of Mr. Icahn’s designees and billionaire John Paulson to the Board. AIG shares are down 9% since the beginning of 2016. Carl Icahn’s Icahn Capital LP owns 44.42 million shares of American International Group Inc. (NYSE:AIG) as of March 31.

#4. Caesars Entertainment Corp (NASDAQ:CZR)

– Shares owned by Silver Point Capital as of March 31: 3.48 Million

– Value of Silver Point Capital’s holding as of March 31: $23.64 Million

The Connecticut-based credit and distressed debt firm increased its exposure to Caesars Entertainment Corp (NASDAQ:CZR) by 967,000 shares during the first quarter of 2016 to 3.48 million shares. The position was worth $23.64 million at the end of the quarter and made up 2.7% of the firm’s equity portfolio. Caesars Entertainment Operating Co., the largest operating unit of publicly-traded casino company Caesars Entertainment Corp, has recently failed to secure support from first-lien banks and junior creditors for its reorganization plan after filing for bankruptcy in January 2015. The publicly-traded parent company may need to contribute roughly $4 billion to help fund CEOC’s Chapter 11 exit plan. Several hedge funds have sued the casino company for roughly $11.4 billion, claiming that the parent company of CEOC reneged on guarantees on bonds issued by its largest unit. Shares of Caesars Entertainment Corp are up nearly 6% thus far in 2016. John Paulson’s Paulson & Co. was the owner of 14.44 million shares of Caesars Entertainment Corp (NASDAQ:CZR) at the end of March.

#3. Ally Financial Inc. (NYSE:ALLY)

– Shares owned by Silver Point Capital as of March 31: 1.18 Million

– Value of Silver Point Capital’s holding as of March 31: $22.00 Million

The asset manager run by two former Goldman Sachs partners acquired a new stake of 1.18 million shares of Ally Financial Inc. (NYSE:ALLY) during the January-March period, which was valued at $22.00 million at the end of the period. The new stake represented 2.5% of the manager’s portfolio at the end of March. The former financing arm of General Motors Company (NYSE:GM) focuses on two primary markets: auto-lending and direct online banking. The company’s Ally Bank represents a leading franchise in the direct (internet, telephone, mobile, and mail) banking market. Just recently, Ally Financial acquired online brokerage TradeKing Group for roughly $275 million, which will add TradeKing’s brokerage and wealth management services to Ally’s current product portfolio. The digital wealth management market is expected to reach $7 trillion by 2020, so the $8.6 billion financial services company will definitely benefit from this massive market. Richard Perry’s Perry Capital reported owning 22.60 million shares of Ally Financial Inc. (NYSE:ALLY) in its latest 13F.

#2. Caesars Acquisition Company (NASDAQ:CACQ)

– Shares owned by Silver Point Capital as of March 31: 815,000

– Value of Silver Point Capital’s holding as of March 31: $4.99 Million

Silver Point Capital added 739,700 shares of Caesars Acquisition Company (NASDAQ:CACQ) to its pool of holdings during the first quarter of the year, which lifted the Caesars Acquisition-position to 815,000 shares. The upped stake was worth $4.99 million at the end of the first quarter. Caesars Acquisition Company was formed in February 2013 to make an equity investment in a joint venture between CAC and subsidiaries of Caesars Entertainment Corporation. In December 2014, CAC and CEC inked a merger agreement, which is subject to the overall restructuring of CEOC. In mid-May, a Reuters article said that gaming holding company Caesars Acquisition received offers of more than $4 billion for its Interactive Entertainment unit, which owns the World Series of Poker and several social and mobile gaming brands such as Bingo Blitz and House of Fun. Caesars Acquisition shares are up 47% year-to-date. George Soros’ Soros Fund Management had 6.54 million shares of Caesars Acquisition Company (NASDAQ:CACQ) in its equity portfolio at the end of March.

#1. Valeant Pharmaceuticals Intl Inc. (NYSE:VRX)

– Shares owned by Silver Point Capital as of March 31: 165,000

– Value of Silver Point Capital’s holding as of March 31: $4.34 Million

The Connecticut-based asset manager added a 165,000-share position in Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) to its portfolio during the first three months of 2016, which was valued at $4.34 million on March 31. The embattled Canadian drugmaker has a bumpy road ahead despite making significant changes at the helm of the company with the appointment of Joseph Papa as the new President and CEO, as well as significant changes in the boardroom. The reshuffled boardroom includes hedge fund manager Bill Ackman of Pershing Square Capital Management, who has lost a great deal of money on his investment in Valeant. The company’s weaker-than-expected first-quarter financial results released earlier this month were said to reflect the numerous disturbances Valeant has faced over the last nine months, including investigation over price increases of certain medications. The drugmaker has seen its market value plummet by 74% since the start of 2016, partially due to major concerns over the company’s huge debt load. Jeffrey Ubben’s ValueAct Capital was the owner of 14.99 million shares of Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) on March 31.

Disclosure: None