Could you be a vulture capitalist? How about a Wolverine capitalist?

Ever been to Detroit?

Chances are, at some time in your life you bought a car that was partially made or assembled or at least designed there. Whatever you paid for that car, you could now buy a house in Detroit for less. Of course, it’ll have no police or fire protection. It won’t even have running water or electricity, considering looters have long since run off with all the copper pipes and wiring.

But if you’re a canny kind of venture capitalist, this is exactly the kind of opportunity you’re looking for. And if you have any expertise in distressed public debt or any first-hand knowledge of the players and the game in the Motor City, then these private equity firms are looking for you. “Vulture capitalist” has such a nasty connotation, though. In deference to Michigan’s ferocious and fearless state animal, though, let’s call these firms “Wolverine capitalists.”

According to an article in the Detroit Free Press, “[h]edge funds and private equity investors are quietly circling Detroit, exploring ways to profit from the historic Chapter 9 bankruptcy filing.” Business writer Nathan Bomey reports “opportunistic investors are looking to gamble by acquiring some of the city’s distressed debt … [and] hope to turn a quick profit when Detroit emergency manager Kevyn Orr and bondholders reach a settlement in the future.” The article considers this good news for Detroiters because hedge funds are looking for a quick turnaround rather than the hundred pennies on the dollar that the original bondholders expect.

But there’s a lot of heavy lifting that needs to be done. As far as the Free Press knows, the biggest deal so far for Detroit’s distressed securities was for about $20 million. That’s out of $8 billion in Detroit munis in investors’ hands. (Maybe at this point we need a Detroit-specific moniker for junk bonds. “Clunker bonds?” “Lemon bonds?” If we really want to talk about something that came out of Motown that underperforms and can’t find a niche in the market, how about “Chevy Volt bonds?”)

Big deals are going to happen. Firms are going to need specialized expertise and entree. Hedge funds and private equity funds are, of course, playing their strategies very close to their vests. The particular players who might aspire to being Wolverine capitalists have not made themselves known yet. Still, you can be sure they’ve been searching EMMA (the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access database) for “Detroit MI” or relevant CUSIP numbers. It’s also easy enough to figure out who they’re going to try to turn around and sell the securities to: Bond Buyer regularly posts a list of the largest muni holders.

So you know where the bonds are coming from. You know where they’re going to. If you’re interested in finding the silver lining in Detroit’s bad paper, all that remains is to find out who the middleman is likely to be. If you’re at a senior enough level and you have the right contacts, then maybe you need to look no farther than into the mirror to find a Wolverine capitalist.

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