Investment management firm Spring Mountain Capital is starting a high-yield and distressed municipal strategies group to invest in sub-investment-grade municipal bonds.
The group already manages and advises on more than $230 million in high-yield and distressed municipal assets.
New York City-based Spring Mountain has hired Garey Fuqua, Thomas Brophy and Sandra Matthews to guide the group’s investments. They average 15 years of experience in public finance.
Fuqua is group head, Brophy is portfolio manager and Matthews is director of research and credit.
The group will try to buy bonds not just for their income but also because the bonds may be capable of significant value appreciation, Fuqua said. Some bonds will be sold before maturity. The group will seek controlling positions to have input on turnaround plans.
The group will generally not invest in general obligation bonds. Instead it will invest in bonds that are secured by liens on assets and that get revenues from those assets, Fuqua said. Sometimes a default might lead the group to take over the assets and plot an appropriate “exit strategy.”
The group will only buy non-investment-grade or unrated bonds or debt in default, Fuqua said. “We have to believe in a turnaround,” he said.
The non-investment-grade municipal “marketplace is misunderstood. It is under-researched,” Fuqua said. There are few investment groups specializing in this area, he added.
The group will focus its research on specific obligors and not sectors.
Prior to taking their positions in the group, Fuqua, Brophy and Matthews worked at Ofelia Capital. Ofelia was an investment boutique firm founded by Fuqua. It focused on high-yield municipal bonds.
The high yield and distressed municipal strategies group will complement the group at Spring Mountain Capital handling investment-grade municipal bonds, SMC Fixed Income Management LP, Fuqua said.