Yahoo Finance Jefferies Winds Down Hedge Fund 352 Capital in Wake of Lawsuit
(Bloomberg) -- Jefferies Financial Group Inc. is winding down trading positions at its hedge fund 352 Capital, after the fund sued its former portfolio manager over an alleged fraud, according to people with knowledge of the matter.
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Over the last few weeks, 352 has begun selling some of its asset-backed bonds and plans to unload more in the coming months, said the people, declining to be identified as the details are private. The portfolio will be unwound gradually in order to protect investors, one of the people added.
Investment firm Hildene Capital Management is advising the hedge fund, said the person. Jefferies’ Leucadia Asset Management arm, which backs 352, bought a non-controlling stake in Hildene in 2022.
Representatives for both Jefferies and Hildene declined to comment.
Most of 352’s investments were in asset-backed securities, specifically those known as whole business securitizations, where franchise companies pledge most of their assets as collateral.
About three weeks ago, the hedge fund sold $60 million of such bonds tied to Seattle-headquartered Centerline Logistics Corp., a company that refuels ships and provides other marine transport services, according to the people. Centerline, formerly known as Harley Marine Services, refinanced those bonds last year as part of a larger $425 million debt package. During the refinancing, the initial securitization was dismantled and replaced with a new multi-tranche secured bond as well as a new credit facility.
The investors at the time included 352 Capital, according to a press release. The hedge fund had invested in the subordinated notes portion of the offering, and sold $60 million of the notes last month, according to the people. The two tranches, each sized at $30 million, traded at 89.50 and 92.25 cents on the dollar, data compiled by Bloomberg shows. The refinancing was backed by a fleet of Jones Act tugs and barges valued at more than $500 million.
The asset sales are taking place while 352 sues its former portfolio manager, Jordan Chirico. According to the suit, Chirico directed the purchase of a large quantity of bonds issued by a company that claimed to operate thousands of filtered water vending machines. The suit alleges Chirico knew these machines didn’t exist but used 352’s money to help fund the company, in part to recoup his own investment.
Chirico’s lawyer Bob Gage didn’t immediately respond to a request for comment.
Other assets that 352 may have to unwind include bonds tied to restaurant chain FAT Brands Inc., the people said — which is where Chirico now works as head of debt capital markets. The business, which owns restaurant brands like Fatburger, Johnny Rockets, and Twin Peaks, is looking to refinance at least one of its outstanding bonds.
Chirico became portfolio manager of Leucadia’s 352 fund in 2020. He previously worked at Bank of America Corp., Robert W. Baird & Co. Inc., Credit Suisse Group AG and Brigade Capital Management, according to his LinkedIn profile.
--With assistance from Scott Carpenter.
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