Melody Capital Partners eats risk for breakfast

By Marc Castro

Sep 12, 2013 05:31 AM EDT

After the announcement by UBS AG of its closure of its fixed-income trading business last OCtober, three executives of the bank had opened up shop to trade in areas where bigger banks have since refused to tread.

The fund is named Melody Capital Partners. It has raised nearly USD750 million or GBP473.8 million to obtain loans or purchase debt of firms and other entities with bad credit or no credit ratings. Many of these companies are in financial distress thus the financial arrangements would become unusual and unique for their circumstances.

One such instance would be a private equity firm seeking to purchase more shares in a stock the already have a majority position, but liquidity is an issue as the funds are tied up in other funds. It is in this instance that Melody Capital lent out tens of millions of dollars for the purchase. Another function of Melody is hunting cash starved firms in industries from real estate to telecommunications that have the collateral to put up should loans go bad.

These kinds of transactions, though very risky, was the formula utilized by banks such as UBS AG, Deutsche Bank AG and Goldman Sachs Group Inc. After the collapse of Lehman Brothers though, this kind of risk has been driven to unregulated lenders or the so called 'shadow banking' sector. This all in all has become a USD60 trillion industry which was once the domain of larger established banks.

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