Lincoln National's CRE exposure targeted by two hedge funds
By Carolina Mandl
NEW YORK (Reuters) — Two hedge funds have placed bets that bonds issued by life insurance company Lincoln National Corp (NYSE:LNC) will fall or that its default risk will increase, due to their concerns about the company's commercial real estate (CRE) exposure.
Investors have been on high alert for losses in CRE. That sector has faced challenges since the pandemic after hybrid working arrangements led to a sharp increase office vacancies. At the same time, higher interest rates made repaying debt more challenging.
In the past few months, Mill Hill Capital has taken short positions in Lincoln National's credit, it said, while Saba Capital has held the firm's credit default swaps, a derivative that offers investors protection against a default, a source familiar with the matter said. The source requested anonymity because the trades are not public.
Lincoln declined to provide comments on the hedge funds' positions and referred to previous remarks by its management.
In May, CEO Ellen Cooper told analysts that Lincoln's goal is to reduce leverage and boost capital. She added that the firm is «extremely comfortable» with its commercial mortgage loan portfolio and that any stress is «extremely manageable.»
In a recent presentation, the company said only 2.5% of its investment portfolio is in commercial mortgage loan portfolio related to office, adding the property prices are roughly double the mortgage amounts.
David Meneret, Chief Investment Officer at New York-based Mill Hill, is speculating that there could be losses in its CRE portfolio which he thinks could lead to a rating downgrade, making it more difficult for the firm to obtain new businesses and retain existing ones. He took the position in the
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