Report: Despite Share Sale, No Cash Crunch At Harbinger

Dec 14 2012 | 12:13pm ET

Harbinger Capital Management's many troubles do not include a flood of redemption requests, it seems.

Three of the firm's hedge funds sold off a big chunk of their share of Harbinger's publicly-listed permanent capital vehicle, Harbinger Group, in a secondary offering yesterday. But the move was not motivated by a desperate need for cash to pay out withdrawals, a source close to the situation told The Street. Instead, it was characterized as part of a long-term plan to increase the number of Harbinger Group shares that are publicly traded, and to consequently increase the amount of permanent capital available to the hedge fund.

Prior to yesterday's offering, priced at $7.50 per share, less than 10% of Harbinger Group shares were owned by investors other than Harbinger hedge funds. The offering amounts to more than 14% of Harbinger Group's common shares; underwriters Jefferies Group and Cantor Fitzgerald have the right to sell another 3 million shares over the next 30 days.

It's unclear how much demand there will be for those shares: While Harbinger Group's stock price is up 80% this year, it tumbled 27% in the wake of Thursday's announcement.

Harbinger Group also this week sold $650 million in new bonds to refinance $500 million in higher-rate debt.

Harbinger Capital is currently fighting a Securities and Exchange Commission fraud lawsuit, accusing the hedge fund, firm founder Philip Falcone and former chief operating officer Peter Jenson of defrauding investors in four ways, citing Falcone's loan from Harbinger to pay his taxes, alleged preferential redemption treatment for favored investors including Goldman Sachs, market manipulation and shorting into the deal. The firm is also fighting to save its largest investment, wireless Internet company LightSquared, which filed for bankruptcy in May.


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