March 22, 2011 / 4:36 PM / in 7 years

Feb. US bankruptcy claim trades dip, value rises

* A few large claims dominate trading stats

* Activity expected to drop as bankruptcies dry up

* Traders looking at smaller cases like Crystal Cathedral

By Tom Hals

WILMINGTON, Del., March 22 (Reuters) - The value of U.S. bankruptcy claims that traded in February hit an eight-month high due to a handful of big transfers involving cases such as Mesa Air Group Inc, according to data released on Tuesday.

But overall activity continued to dry up as large bankruptcy filings evaporate and traders are left shifting through smaller cases, according to SecondMarket, which runs a bankruptcy claims trading marketplace.

Creditors such as landlords and trucking companies can trade or sell their claims against bankrupt companies. The seller gets immediate cash, while the buyer, often a hedge fund investor, hopes to make a handsome return by betting on the timing and ultimate payout in the bankruptcy.

In February, a total of $3.47 billion of claims traded, up from $2.55 billion in January.

The Mesa bankruptcy had a lot to do with the increase, with 16 trades averaging $34.4 million. Andrew Gottesman, who heads up SecondMarket bankruptcy claims unit, said some of those trades were tied to claims related to aircraft leases.

While the value of traded claims rose, the number of trades fell to 524, down 17 percent from the previous month and at the lowest level since June 2009.

Lehman Brothers Holdings Inc LEHMQ.PK, the biggest bankruptcy in U.S. history, continued to dominate monthly trades with 220 transfers worth than $2.66 billion.

Other active cases included Cabrini Medical Center, Taylor Bean & Whitaker Mortgage Corp, Crystal Cathedral Ministries, Lack’s Stores Inc and Tribune Co.

Several cases had only a few, very large trades. Only two Fontainebleau Las Vegas Holdings LLC claims traded, but were worth a combined $94.9 million. A single TerreStar Networks Inc [TSTRT.UL] claim traded that was worth $33.5 million.

In contrast, claims against Crystal Cathedral averaged a mere $2,835.

“It’s a byproduct of people more willing to look at smaller cases this year,” said Gottesman of the numerous but tiny Crystal Cathedral claims that were transferred.

“If you want to trade claims this year you’re going to have to be more creative,” he said, adding that he expected claims trading activity to continue to fall along with large bankruptcies. (Reporting by Thomas Hals, editing by Matthew Lewis)

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