News tonight surfaced that hedge fund investor Michael Klein has bought a 100 percent stake in bankrupt subprime lender Quality Home Loans. Terms were not disclosed. From the press statement, Klein’s reason for investing seem clear enough:
“The opportunity for this company has never been greater. The volume of loan applications at Quality is going through the roof as homeowners with significant equity and poor credit have fewer viable lenders to choose from in the current environment. This is a great time to be the 800-pound gorilla in the hard money space,” Klein said.
Klein is a principal at Pacificor LLC. According to court papers, Klein agreed on Aug. 8 to buy 90 percent of Quality Home’s shares, but withdrew the offer 10 days later, citing alleged breaches of the purchase agreement. Quality Home also said Alim Kassam was appointed chief executive, replacing John Gaiser, who will remain a consultant. Kassam, a former Lehman Brothers Inc. investment banker, has been a senior credit analyst at Pacificor for three years, Quality Home said.
The news so far doesn’t specify this investment’s relationship to Pacificor, if one indeed exists. But it’s clear that plenty of players in the financial markets think there is a play to be made in the wreckage of parts of the subprime industry — this is a so called “vulture purchase”, and I’m certain there will be many more in the months ahead.