Avenue Capital’s Investor in Chief - Marc Lasry

He’s Prescient. He’s Well-Connected. Just Don’t Call Marc Lasry a ‘Vulture’.
By MIKE SPECTOR

Even with just three days remaining before last Sunday’s House vote on landmark health-care legislation, White House Chief of Staff Rahm Emanuel made time for a special lunch guest: Marc Lasry.



Over salmon and grilled-chicken salad in Mr. Emanuel’s office, the administration official quizzed the 50-year-old chief executive of hedge fund Avenue Capital Group about whether banks have begun lending again and when an economic recovery might take hold.

With more than $18 billion under management and an estimated $1.35 billion personal fortune, Mr. Lasry is one of Wall Street’s biggest and most well-connected “vulture” investors. A Democratic fund raiser, he is a friend of former President Clinton, and once employed daughter Chelsea Clinton. In November, he shared a table with Secretary of State Hillary Clinton and Defense Secretary Robert Gates at President Obama’s first state dinner.

Mr. Lasry’s firm buys up debt of troubled companies, with hopes of big profits when those firms, and their bonds and bank debt, return to health.



“A lot of what he said turned out to be right,” Mr. Emanuel said of Mr. Lasry’s previous economic outlooks. “I stayed in touch with him because he has a pretty good read on the economy.”



Mr. Lasry was right in recent years when he predicted that the leveraged-buyout boom and a real-estate bubble would lead to a wave of bankruptcies as weaker companies proved unable to refinance debt.



What he didn’t foresee was that conditions would deteriorate so rapidly, and that the resulting financial crisis would force big changes in the way he does business.



Mr. Lasry was once content to buy senior corporate debt at a discount and then patiently wait for values to recover. These investments are first in line for repayment in the event of bankruptcy, which kept Mr. Lasry’s positions relatively protected.



But when values plunged after Lehman Brothers’ failure in September 2008, companies seeking bankruptcy protection often couldn’t repay senior bank lenders in full, let alone bondholders just below them.



That forced Mr. Lasry to move from hedging his bets to doubling down. From his creditors’ perch, Mr. Lasry has made deals to exchange his debt for equity and pumped additional money into companies to ensure he seizes control, much like a bank forecloses on a delinquent homeowner.



The result is Mr. Lasry has gone from a pure manager and trader—he once ran his own distressed-debt brokerage—to a miniconglomerate, with wide-ranging holdings of companies that skirted death during the recession.



In the past year, Avenue has led investors taking over broadcaster Ion Media Networks Inc., plastics processor Milacron Inc. and South Korea’s MagnaChip Semiconductor Corp. out of bankruptcy. Mr. Lasry is close to controlling three bankrupt Atlantic City, N.J., casinos bearing Donald Trump’s name. In all, he has led investors committing more than $500 million of new money to troubled companies.



Mr. Lasry and his team of portfolio managers sit on a handful of corporate boards, activities usually reserved for private-equity shops. Mr. Lasry said such cases represent one in five of the firms he invests in now.



Some on Wall Street question whether firms like Avenue can succeed in steering companies. Mr. Lasry counters that he sticks to good companies with bad balance sheets that end up with less debt, not classic turnarounds.



Mr. Lasry, like many of his peers, disputes the “vulture” label. He is unapologetic about his aggressive tactics in bankruptcies, where he has been forced to litigate to keep once-safe investments from getting wiped out.



“Our view is we can generate an equity return by buying a senior debt instrument,” Mr. Lasry said from the living room of his six-story townhouse on Manhattan’s Upper East Side. Nearby was a photo of Mr. Lasry and his wife with President Clinton and the Rolling Stones at the former president’s 60th birthday party.



“In this environment, we’ve ended up getting more equity because it’s harder for people to refinance. That’s the only reason why I think now, all of a sudden, everybody focuses on us a little bit more,” Mr. Lasry said.



The turnabout came after Avenue’s investments fell 25% in 2008 and Mr. Lasry personally lost about $100 million. Among other bets, Mr. Lasry held debt in Tribune Co., which entered a free-fall bankruptcy toward the end of the year.



Having once focused on fund raising, Mr. Lasry decided to take the investment reins from one of his lieutenants, Bruce Grossman, who had steered Avenue’s buying and selling for a number of years. Mr. Grossman, a close friend of Mr. Lasry’s, left Avenue.



Now making the day-to-day decisions on Avenue’s investments, Mr. Lasry has tussled with big personalities including Six Flags Inc. board chairman and Washington Redskins football-team owner Daniel Snyder and casino mogul Mr. Trump.



Soon after Mr. Trump’s three casinos filed for bankruptcy protection in February 2009, the star of NBC’s “The Apprentice” allied himself to a restructuring plan that would have left just a sliver of new equity for Avenue-led bondholders owed $1.25 billion.



Mr. Lasry, a competitive poker player, began meeting with Mr. Trump to appeal for a different plan. After Avenue court victories and lunches in Trump Plaza, Mr. Trump switched sides, joining Mr. Lasry’s bid to control the casinos.



Mr. Lasry’s aggressive tactics haven’t always worked. Avenue pushed to provide a bankruptcy loan rich with fees and other stringent conditions to Ion Media when the broadcaster filed for bankruptcy protection last May. At a hearing, other debt investors objected, forcing lawyers to renegotiate the deal in a courtroom hallway.



Avenue’s performance rebounded last year, up 66% amid the firm’s court victories and a broader market rally. Avenue is currently out raising a new $3 billion fund for distressed opportunities.



Mr. Lasry’s hard-charging tactics belie a disarming persona. He shuns suits for pullover sweaters and often wears loafers without socks. Some bankers and lawyers grumble about Avenue’s aggressive portfolio managers but tend toward a favorable view of Mr. Lasry.



Mr. Lasry is a “180” from most fund managers, said Bruce Feldman, who has overseen $255 million of investments with Avenue as director of alternative investments for the Pennsylvania State Employees’ Retirement System. “He’s not brash. He’s not loud.”



Born in Morocco, Mr. Lasry moved to Hartford, Conn., at age seven, sharing a room with his two sisters in a small, two-bedroom apartment.



Mr. Lasry considered a management job at truck-shipping company UPS but his eventual wife, Cathy, insisted he attend law school. Mr. Lasry eventually went to work for Robert M. Bass Group under David Bonderman, founder of private-equity giant TPG. Mr. Lasry became among the first investors to trade substantial amounts of bankruptcy claims.



Mr. Lasry and his sister, Sonia Gardner, opened their own brokerage in 1990. In 1995, the pair founded Avenue with about $10 million.



In 2006, as Avenue continued to expand, Mr. Lasry sold a roughly 15% stake to Morgan Stanley for more than $250 million. Avenue now has 300 employees with 13 offices around the world, including London, Munich and throughout Asia.



He recently made a killing in a much smaller market: Mr. Lasry just sold his copy of the first Superman comic for $1 million. He bought it for $150,000.