JP Morgan Highbridge Aerospace Bet

Chidem Kurdas

More than a score of funds are holding aerospace and missile systems maker  GenCorp.  Among them is the hedge fund unit of JP Morgan, Highbridge, which reported a stake of over 5%.

GenCorp had a loss in the first quarter. Its earnings are volatile. What is the attraction?

We know the case another buyer made for GenCorp. This February on CNBC Mario Gabelli depicted it as one of two stocks that would double. Gabelli’s reasons were GenCorp’s acquisition of Rocketdyne and the fact that it owns valuable California property—it describes itself as in part a real estate business.

Another reason cited for the convergence of hedge funds on this rocket technology and real estate firm is the Pentagon’s need for anti-missile systems against threats from North Korea.

DE Shaw, the big quant shop, also brought GenCorp, possibly as a value play.

Interestingly, Highbridge chief Glenn Dubin did not go for the stock directly. Instead he bought GenCorp convertible bonds, due in 2039. This may indicate a cautious stand. Converts are a flexible way to take a position.

The bonds convert to 3,210,354 shares of common stock. But if GenCorp’s prospects remain uncertain, Highbridge could continue to hold the bonds, which pay over 4% interest.


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