The troubled $750 million loan to Iridium LLC may have contributed to the abrupt departure of the star bank-loan fund manager at Van Kampen Investments Inc., Jeffrey W. Maillet.
Mr. Maillet, who managed more than $13 billion in bank loan funds and left the firm at the end of July, invested $48 million in the Iridium loan.
Arranger Chase Manhattan Corp. declared the credit in default on July 31, according to filings with the Securities and Exchange Commission.
Sources say that though Iridium represented less than 1% of Mr. Maillet's portfolio at Van Kampen, he had been under pressure to show higher returns and to tighten the criteria by which he marked his portfolio to market.
Marking to market, or assessing the value of a fund's holdings on a timely basis, has become "a huge problem," said a rival fund manager who asked not to be identified. It's "on everyone's mind."
Mr. Maillet, who joined John Nuveen & Co. last week to run a similar fund, was unavailable for comment. A Nuveen spokeswoman said Mr. Maillet could not comment because of confidentiality agreements. Calls to Van Kampen seeking comment were not returned.
Unlike bond funds, which use outside firms to establish a portfolio's value, there is no accepted standard for valuing bank loan funds.
Daniel Norman, treasurer of the $1.2 billion Pilgrim Prime Rate Trust, said his firm reports its holdings and assesses values quarterly. Pilgrim managers, like other professionals in the business, value their fund's assets themselves.
As a result, managers use widely varying criteria to price their loans. Sources said senior managers at Van Kampen were unhappy with the way that Mr. Maillet had been valuing his portfolio. They complained that Mr. Maillet had overvalued distressed assets that were not paying returns, such as Iridium.
Mr. Maillet and Van Kampen were early investors in Iridium's loans. In mid-1998, the fund held a $30.4 million piece of an initial term loan to the company. That deal was refinanced by Chase in December 1998 with terms that Iridium has found difficult to meet.
In an April 8 filing with the SEC, Van Kampen reported that as of Jan. 31 it valued its $48 million loan to Iridium at $46.8 million. Less than eight weeks later, Iridium stopped making payments on the loan.
"This company went really quickly from a high-yield company to distressed," said Rick Grubbs, a debt analyst with Credit Lyonnais in New York. "It spiraled out of control."
Recently, Iridium loans have been trading in the secondary market at around 52% of face value, making Van Kampen's holdings worth about $26 million.
Sources say that devaluation, in part, led to Mr. Maillet's departure. Since then, the fund has been under the watch of Dennis J. McDonnell and Darvin Pierce.
The Iridium loan also has become a major embarrassment for Chase.
"Banks aren't interested in satellites. They want to get paid," Mr. Grubbs said.
