H Partners and Six Flags (B)

by Robin Greenwood and Michael Gorzynski

Abstract

Rehan Jaffer, the founder of hedge fund H Partners, is considering what to do with his investment in Six Flags. H Partners had invested a significant amount of the firm's capital in the senior bonds of U.S.-based Six Flags, following that company's bankruptcy filing.

Keywords: Equity; Insolvency and Bankruptcy; Business and Shareholder Relations; Price; Acquisition; Decisions; Borrowing and Debt; Investment Funds; Opportunities; Bonds; Investment Activism; Financial Services Industry; United States;

Format: Print

2 pages

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Citation:

Greenwood, Robin, and Michael Gorzynski. "H Partners and Six Flags (B)." Harvard Business School Supplement 211-096, March 2011.

About the Author

Robin Greenwood

George Gund Professor of Finance and Banking

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Citation:
Greenwood, Robin, Adi Sunderam, and Jared Dourdeville. "Assured Guaranty (CW)." Harvard Business School Spreadsheet Supplement 213-724, March 2013.

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Case | HBS Case Collection | 2013

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Citation:
Greenwood, Robin, Adi Sunderam, and Jared Dourdeville. "Assured Guaranty." Harvard Business School Case 213-100, February 2013.

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Working Paper | 2013

Waves in Ship Prices and Investment

Samuel G. Hanson and Robin Greenwood

We study the returns to owning dry bulk cargo ships. Ship earnings exhibit a high degree of mean reversion, driven by industry participants' competitive investment responses to increases in demand. This mean reversion is not fully reflected in ship prices. We show that high current ship earnings are associated with high secondhand ship prices and heightened industry investment, but forecast low future returns. We suggest and estimate a behavioral model that can account for the evidence. In our model, individual firms overestimate their ability to respond to common shocks and underestimate the ability of the competition, leading to excessive industry investment during booms and low subsequent returns on capital. Our model nests both rational expectations at one extreme and Kaldor's (1938) cobweb theory at the other, in which producers naively set current production quantities based on lagged prices. Formal estimation of our model suggests significant competition neglect in the shipping industry.

Citation:
Hanson, Samuel G., and Robin Greenwood. "Waves in Ship Prices and Investment." Working Paper. (Internet Appendix Here.)

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