Falling Fortress under siege
THE troubled Macquarie Bank hedge fund Macquarie Fortress has confirmed it has lost more than 27 per cent of its value and stands to lose even more this month as it deals with the continuing credit crisis.
In a statement to the Australian Securities Exchange yesterday, Macquarie Fortress Notes director Peter Lucas confirmed the fund’s value had fallen to 72.8 in the dollar on July 31, falling below its most recent warning on August 6 that the fund would lose up to 25 per cent of its value.
Yesterday Mr Lucas predicted the notes would fall another 1.3 in August, taking total losses to almost 30 per cent. But he said it was on target to continue paying interest at the rate when it was first launched.
Macquarie Fortress Notes and the unlisted Macquarie Fortress Fund had investments in a senior loan portfolio of almost $US1 billion ($A1.2 billion) before the crisis, although that figure has dropped in line with the downgrades.
News of the fund’s problems on August 1 led to a hammering for Macquarie Bank amid a broader share price drop as the market came to grips with defaults in the subprime mortgage market in the United States.
On August 1 Macquarie Bank shares plunged $8.80 or almost 11 per cent to $73.70, and they subsequently fell to $64. The shares closed yesterday at $73.30, up $2.08 for the day.
The crisis has affected confidence in debt markets generally, with hedge funds operated by Bear Stearns and Basis Capital collapsing as investors savagely marked down the complex debts they invested in.
Macquarie Fortress’ problems have been increased by a level of five times debts over the senior loan assets it holds in the portfolio. For example, its losses have come about because of falls in value of the senior loans it holds by as little as 5 per cent. Macquarie Fortress has previously announced it has sold $US133 million in loans to reduce its debts.
Mr Lucas said the notes represented 0.5 per cent of Macquarie Bank’s assets under management.
