Billionaire Marc Lasry’s Top Q4 Moves From Avenue Management’s Last 13F

The correction in crude oil and natural gas prices over the past many months has made several investors wary of investing in the energy sector. However, there are also a few investors, including billionaire Marc Lasry, who views these declines as an opportunity to bet big on the energy sector. In his last few interviews, Mr. Lasry has mentioned several times that he sees a huge opportunity in oil & gas and also revealed that his firm, Avenue Capital, is capitalizing on it by purchasing debt that sees a coupon of around 12%. The New York-based fund was founded by Mr. Lasry with his sister, Sonia Gardner, in 1995 with $7 million of their own capital and, in the last 20 years, it has grown to around $12 billion in assets under management (AUM). Avenue Capital recently has submitted its latest 13F filing with the SEC for the reporting period ended December 31, in which it disclosed an equity portfolio worth $622.5 million. In this article we are going to discuss five notable moves from Avenue’s latest filing.

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Let’s start with Scorpio Bulkers Inc (NYSE:SALT), in which Avenue Capital reduced its stake by 35% to 781,577 shares during the fourth quarter and disclosed a stake worth $7.73 million. The decline in commodity prices over the past several months raised concerns about the survival of most dry-bulk shipping companies, including Scorpio Bulkers Inc (NYSE:SALT). The company lost 50% of its market capitalization last year, and it has slid by 80% since the beginning of 2016. Last year, when shares of the company continuously traded below the $1 mark for 30 days, the New York Stock Exchange (NYSE) sent a letter to the company informing it that it was no longer in compliance with the NYSE’s listing rules. To continue its listing, Scorpio Bulkers went for a 1-for-12 reverse stock split on December 31.

Hovnanian Enterprises, Inc. (NYSE:HOV) is another stock in Avenue Capital’s equity portfolio that has declined by over 75% since the start of 2015. Although the fund reduced its stake in the company by 19% during the fourth quarter, it still held over 5 million shares of Hovnanian Enterprises, Inc. (NYSE:HOV) worth $9.25 million at the end of that period. Despite the company having negative equity and negative liquidation value, a few of the analysts who track the stock are bullish on it, citing the growth in its profitability and revenue. However, most analysts who cover the stock are not optimistic about the company’s future, their main argument being that the Hovnanian Enterprises, Inc. (NYSE:HOV) has over $2 billion in long term debt, while its cash and cash equivalents are only a few millions and its market capitalization is only $225 million. Ken Griffin‘s Citadel Investment Group also cut its stake in Hovnanian Enterprises by 97% to 81,004 shares during the fourth quarter.

Moving on, Avenue Capital bought 917,000 shares of SPDR Barclays Capital High Yield Bnd ETF (NYSEARCA:JNK) during the fourth quarter worth $31.1 million, as of December 31. Since Mr. Lasry is bullish on energy sector debt, it isn’t a surprise that the fund initiated this stake in an ETF that mimics Barclays Capital High Yield Very Liquid Index. This index consists of taxable corporate bonds that are US dollar denominated, fixed-rate, non-investment grade, that have a remaining maturity of at least one year, regardless of optionality, have $600 million or more of outstanding face value and are rated high-yield using the middle rating of Moody’s, S&P, and Fitch, respectively. Though the SPDR Barclays Capital High Yield Bnd ETF (NYSEARCA:JNK) has fallen by over 18% since June last year, owing to the $0.17 per share monthly dividend it pays, its annual dividend yield has increased to over 7.5% during the same time.

iShares iBoxx $ High Yid Corp Bond (ETF) (NYSEARCA:HYG) was another high-yield ETF in which Avenue Capital initiated a stake during the fourth quarter. It acquired 390,100 shares of  iShares iBoxx $ High Yid Corp Bond (ETF) (NYSEARCA:HYG) during the last three months, valued at $31.43 million on December 31. The iShares iBoxx $ High Yid Corp Bond (ETF) (NYSEARCA:HYG) tracks the investment results of Markit iBoxx USD Liquid High Yield Index, which primarily consists of US dollar denominated high yield corporate bonds of consumer services, financial, industrials, and oil and gas companies. Although shares of iShares iBoxx $ High Yid Corp Bond (ETF)(NYSEARCA:HYG) have declined by 15% since June last year, it sports a dividend yield of 6.71%.

Finally, even though Avenue Capital increased its stake in electric utility company Dynegy Inc. (NYSE:DYN) by 62% during the fourth quarter, the company remained Avenue Capital’s sixth-largest equity holding at the end of fourth quarter due to the 35% decline its stock witnessed during that period. Even though Morgan Stanley upgraded the regulated utilities industry to ‘In-Line’ from cautious and named Dynegy Inc. (NYSE:DYN)  as its top pick in the sector on January 12, shares of  Dynegy Inc. (NYSE:DYN) didn’t change their trajectory and have fallen 37%  so far this year. The company is expected to report its fourth quarter earnings next week and analysts are projecting that it will declare a per share loss of $1.45 on revenue of $1.09 billion, compared to a loss of $0.96 per share on revenue of $599 million delivered for the same period of 2014. Howard Marks‘ Oaktree Capital Management held 9.8 million shares of the company at the end of fourth quarter.

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