Citadel Investment Group has topped Credit Suisse in an auction, agreeing to pay about $180 million for bankrupt ResMAE Mortgage Corp.
Citadel, a $13.4 billion Chicago-based hedge fund, said they will allow ResMAE, the bankrupt subprime mortgage lender, to work as an autonimous unit and allow founders Jack Mayesh and Ed Resendez to stay in control of the company. Subprime loans are offered to borrowers with spotty credit and lower incomes, the sector has descended into crisis as interest rates climbed from record lows.
ResMAE filed for bankruptcy in February, the firm said in the filing that it planned to sell most of its assets to Credit Suisse. However, hedge fund Citadel offered to pay $22.4 million, a break-up fee of up to $1.5 million plus ResMAE loans for 98.5% of their face value, or roughly $160 million.
U.S. Bankruptcy Judge Kevin Carey in Wilmington, Delaware, approved the sale on Monday afternoon, "Our financial support of ResMAE during this reorganization will allow one of the industry's leaders to remain appropriately capitalized to meet the needs of this very important market," Citadel's Ken Griffin said in a statement.
Other hedge funds are also expanding into this area, in July, hedge fund Fortress Investment Group LLC paid $554.3 million for the subprime lending arm of Dallas-based homebuilder Centex Corp. Then in December, Fortress also bought Champion Mortgage's loan- underwriting business from KeyCorp.
Since its founding as a $4.6 million convertible arbitrage fund in 1990, Citadel has grown into a sophisticated alternative investment institution. The hedge fund has seven main areas of focus including equities, fixed income and energy trading.
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