Investors who bought insurance meant to mitigate losses from Sears Holdings Corp.’s bankruptcy proceedings are claiming that a hedge fund that sold the insurance is improperly influencing market proceedings, according to a letter seen by Reuters. According to the letter, Cyrus Capital Partners LP worked to “torpedo” an auction planned for yesterday for company bonds by getting Sears to include wording in a bankruptcy court order that would disqualify the bonds in credit proceedings. By selling the insurance, Cyrus had been wagering that Sears would avoid filing for bankruptcy. The investors, whose names were redacted in the letter, bet correctly that Sears would file for bankruptcy. It was not clear if the investors bought their insurance from Cyrus or another firm. The letter, which is not public, was submitted on Tuesday by attorneys for the investors to a committee of the International Swaps and Derivatives Association (ISDA) overseeing the market. Later on Tuesday, ISDA determined that the bonds would be included, according to a posting on its website.
