Goldman Sachs Group Inc. and Blackstone Group LP recently resolved a monthslong standoff over a controversial derivatives trade that had alarmed regulators and investors in the $11 trillion credit-default swaps market, WSJ Pro Bankruptcy reported. The Wall Street giants had taken opposite sides of a bet on bonds issued by home builder Hovnanian Enterprises Inc. The trades, engineered by Blackstone’s GSO Capital Partners LP, involved the home builder intentionally skipping a small interest payment earlier this month in exchange for an attractive financing package from the private-equity house. Blackstone had bought insurance against a default, which would allow it to make money from the skipped interest payment. It bought this insurance, through what are known as credit-default swaps, from Goldman and others. This put Goldman at risk of losing money. Goldman and Blackstone last week effectively zeroed out the trade between them, with Blackstone agreeing to assume Goldman’s position, people familiar with the matter said. Goldman is now off the hook for a payout that could have run tens of millions of dollars, and Blackstone reduces its exposure to a wager that has become increasingly fraught.
