Navistar fall could cost hedge-fund firm $200 mil
Harbinger Capital Partners, the New York-based hedge-fund firm run by Philip Falcone, has almost $200 million in potential losses on bets that Navistar International Corp.'s stock price would rise.
Harbinger bought swap contracts on 4.55 million shares of Navistar that would gain if the truck maker's shares rose above certain prices, according to a Nov. 14 regulatory filing. Warrenville-based Navistar has dropped 63 percent in New York trading this year to $19.86, about two-thirds below the price where the trades are profitable for Harbinger.
Falcone, 46, who oversees $20 billion in assets, lost about 13 percent this year through October after being up 42 percent in the first half of the year, investors said earlier this month. The unrealized Navistar losses could be reversed if Navistar's stock rebounds. That's not likely any time soon, said Walter Liptak, an analyst at Barrington Research Associates in Chicago.
"With the truck market's collapse and the trucker net income being what it is and finance being what it is, the outlook is pretty dreary," Liptak said. Navistar is the world's fourth-ranked truck maker and produces diesel engines for Ford Super Duty trucks.
Charles Zehren, a spokesman for Harbinger, declined to comment.
The swaps, provided by Deutsche Bank AG and Monecor Ltd., a London-based company that sells derivatives, permit Harbinger funds to reap any gains in Navistar shares greater than prices specified in the contracts. The funds must pay Deutsche Bank and Monecor should Navistar shares decline below the preset prices, which range from $48.21 to $69.95 a share.
'Mistakenly Omitted'
Harbinger's swap contracts are profitable at an average price of $63.33 a share, according to data in the filing. Based on Navistar's current share price, the Harbinger's Master Fund I Ltd. and Special Situations Fund LP face about $198 million in losses. Harbinger has the right to close the contracts at any time.
The funds entered into most of the Navistar swaps between May and August 2007, according to the filing with the U.S. Securities and Exchange Commission. They added some additional contracts in July and August. The swaps were first disclosed in the Nov. 14 filing.
"It should be noted that certain swap positions" on Navistar shares "have been mistakenly omitted" on previous regulatory filings, Harbinger said.
Harbinger closed out some of its swap contracts with Deutsche Bank on Nov. 12 and 13. The contracts, which covered 411,900 of the shares, were settled at prices ranging from $16.97 to $17.06 a share, according to the filing.
In addition to the swaps, Harbinger Capital's funds held about 10 million Navistar common shares at Sept. 30, according to SEC filings. The stake was Harbinger's fourth-largest at the time, following its holdings in Calpine Corp., Cliffs Natural Resources Inc., and Cablevision Systems Corp.