Bridget Hughes: I know Third Avenue has been opportunistic in distressed investing for a number of years with Marty Whitman at the helm. He wrote in his recent shareholder letter that he thought there could have been a revolution in reorganizations in 2009 because of the orderly process that some of the companies went through. Is that good news for the fund or could it be bad news?
Jeff Gary: We think its good news. And part of this started from the change in the bankruptcy laws about two years ago where they shortened the timeframe that a company could actually be in bankruptcy. You remember back 10 or 15 years ago LTV was in bankruptcy for over seven years. So now, they've shortened that window whereby the company is essence needs to get out and is incentivized to get out sooner.
So what we've seen is a trend towards the company, as they are getting into trouble, not just filing and announcing it on a Friday night, and it kind of goes into a freefall, but rather they have negotiated a prepackaged plan of bankruptcy with their bank loan lenders, their high-yield bonds and all their constituents, so that they have agreed on who will get what in terms of recovery and who will get the equity before they file for bankruptcy.
They also have their DIP financing lined up. So both from a time and bankruptcy standpoint, which can be very negative for many businesses in terms of just their basic fundamentals, customer uncertainty, they are able to shorten the timeframe that they are in bankruptcy, and they are able to do it on an orderly basis and with minimizing a lot of this infighting, and what I'd say are – can become very expensive lawyer bills that detract from all of our recoveries. So this actually is a positive for the bankruptcy process.
Now, it does shift the game a little bit, in that it's more important to be involved kind of beforehand, and then also the DIP loans are usually provided by the existing lenders. These are very attractive risk-adjusted return investments, and so, therefore, you need to be involved sometimes sooner than you may have otherwise back 10 or 15 years ago where you buy after they were in bankruptcy.
Hughes: All right. Well, thank you, Jeff, for your time.
Gary: Thank you, Bridget. Thank you very much.