Libor Zombies Pit Hedge Funds Against Banks in High-Stakes Feud

The play: Load up on 1980s-era bank bonds and other securities at rock-bottom prices, and then demand early repayment at full value.

This feud is, to the surprise of some observers, one of the few aspects of the transition away from Libor — once the benchmark for nearly $400 trillion of assets — that has caused trouble. But for those on both sides of the dispute, the stakes are rising. There’s just over a year until a stopgap alternative to Libor expires, at which point, some market observers say, the debt will fall into legal limbo.

Man Group Plc, the world’s largest publicly traded hedge fund manager, is one of the firms that’s piled into the bonds. In July, holders of $200 million of Rothschild notes voted against a proposal to change the reference rate underpinning the securities. A few weeks later, an attempt by BNP to amend a similar bond’s terms also failed.

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