Just when it seemed Refco was getting somewhere in settling with some of its creditors, a couple of hedge funds have thrown in a monkey wrench into proceedings. The collapsed broker reportedly had earmarked for repayment to some creditors $300 million of some $500 million it was receiving from Bawag bank to settle claims that the Austrian financial institution was a “partner in crime” by lending former Refco CEO Phillip Bennett hundreds of millions of dollars to conceal losses. Refco has told U.S. bankruptcy Judge Robert Drain, who is handling the case, that the $300 million payment to lenders Banc of America Securities and Credit Suisse would halt monthly interest accruals of $6 million, and leave more to give back to creditors. But JMV Capital Partners and Lonestar Capital Management, which together hold more than one-quarter of Refco stock (reportedly acquired after its collapse last October), have moved to nix the payout, claiming it “appears unnecessary.” They argue that “the court must allocate all the Bawag proceeds at one time, not in a piecemeal fashion” - in other words, Refco shouldn’t decide how to spend the Bawag bucks. The hedge funds have tried to shoot down the argument that Refco needs that money to pay creditors, by noting that the broker could liquidate some of the assets from the more than 75 subsidiaries not in bankruptcy. Drain is set to decide the matter Sept. 27.
