The judge presiding over Sears Holdings Corp.’s bankruptcy chided a swap-betting hedge fund yesterday for interfering with the retailer’s effort to auction off loans owed between different Sears affiliates, WSJ Pro Bankruptcy reported. Sears has proposed selling $900 million in internal claims from one company unit against another, taking advantage of surging demand for the debt instruments from credit default swap traders. The sale proposal is being opposed by Cyrus Capital Partners LP, a Sears creditor that wrote insurance on Sears debt, betting the company would survive longer than it did. These internal debts would normally be extinguished in a bankruptcy. But they are suddenly a hot commodity among hedge funds that bought credit default swaps on Sears Roebuck Acceptance Corp. and now need cheap debts linked to that subsidiary to maximize returns. A bidding war for the intercompany notes could raise cash that Sears desperately needs to avoid liquidation.
