Pimco Seeks as Much as $5 Billion for Distressed Debt

August 27 2008 - Pacific Investment Management Co., the biggest manager of bond funds, is seeking as much as $5 billion to buy mortgage-backed debt that plunged in value after the subprime market collapsed, according to two investors with knowledge of the matter.

The Distressed Senior Credit Opportunities Fund will invest in “senior” and “super-senior” securities backed by commercial and residential mortgages, said the people, who asked not to be identified because the fund is private. Senior debt is first to be paid off in a default.

Pimco, based in Newport Beach, California, and money managers such as BlackRock Inc. and TCW Group Inc. have opened funds to buy securities they consider cheap based on the underlying value of the assets or the borrower’s ability to repay the debt. Investors have pulled back from all but the safest government-backed debt as the foreclosure rate on U.S. subprime- mortgage loans doubled to a record 10.7 percent in March from a year earlier.

“There’s a handful of firms out there, Pimco being one of them, that are well-positioned to deal with this credit crisis and the fire sales going on in mortgage-backed securities,” Geoff Bobroff, a mutual-fund consultant in East Greenwich, Rhode Island, said in an interview.

Pimco, a unit of Munich-based insurer Allianz SE, oversees $830 billion, including the $129.5 billion Pimco Total Return Fund, the largest bond mutual fund. Last year, it raised almost $3 billion to invest in distressed mortgage assets, the investors said.

Mohamed El-Erian, Pimco’s co-chief executive officer, declined to comment. El-Erian shares the position of co-chief investment officer with Bill Gross, while Bill Thompson is the co-CEO.

Pimco Seeks as Much as $5 Billion for Distressed Debt
by Sree Vidya Bhaktavatsalam | Bloomberg