New exchange offers trading of bankruptcy claims

By Emily Chasan

NEW YORK (Reuters) - Distressed-debt and vulture investors looking to profit from the spike in corporate bankruptcies this year are about to get unprecedented access to a previously well hidden corner of the market.

Restricted Stock Partners, a broker-dealer specializing in illiquid securities, will launch a trading platform for bankruptcy claims next week that its chief executive says should boost liquidity and efficiency in the estimated $75 billion market.

The new platform, which will feature quotes and bids and asks, will allow trade vendors, leaseholders, and other parties that hold claims against bankrupt companies to sell their interests to investors before the conclusion of a bankruptcy case.

Restricted's CEO, Barry Silbert, said he hopes this new platform will make trading of bankruptcy claims as popular as the bonds and loans that distressed-debt investors have traditionally focused on.

"In the last bankruptcy boom, the distressed-bond trading really took off, and in this bankruptcy boom we think it's going to be the bankruptcy-trade claims," Silbert said.

"We know the claims holders themselves would like to get cash today and not wait two or three years until the end of the bankruptcy case."

Investors like to buy trade claims because they are typically unsecured and the claims can help them position themselves as a major stakeholder in the company once it emerges from bankruptcy.

Also, trade vendors are typically so desperate to exchange their claim for cash to keep their businesses running that they are willing to accept steep discounts, when they could often get a full recovery if they waited until the end of the bankruptcy case.