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By Michael Breen | 02-03-2010 11:39 AM

Berkowitz on Opportunity in Bankruptcies

The Fairholme manager comments on the fund's significant investment in the convertible bonds and bank debt of bankrupt mall operator General Growth Properties.

Michael Breen: You touched on your flexibility and how a dollar doesn't care where it comes from and how it is made. Your fund has a pretty flexible mandate, and you can invest in different spots on the capital structure. Can you touch on that, and what you are seeing right now in addition to equity convertible debt floating rate notes, other types of vehicles that you're looking at?

Bruce Berkowitz: Absolutely. As we study the equity of companies, you just have to study the companies. And we take a look at the entire capital structure of a company, from bank debt to senior secured, senior unsecured, subordinated debt, preferred stock, common stock, and look to understand the returns on each part of the capital structure.

In the past that's led us to the bank debt of bankrupt securities and presently it has led us to the various levels of debt of GGP, General Growth Properties. We own bank debt; we own convertible bonds.

Breen: And that firm is a big mall operator, correct, that's in bankruptcy?

Berkowitz: One of the biggest in bankruptcy, and there seems to be two or three groups interested in it. And the good news is, in our opinion, that the bond is basically money good. And if you understand the bankruptcy process, you're purified in bankruptcy, and the money good is asset-backed, bought at high yields. And today's senior debt in a bankruptcy may be tomorrow's new equity.

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