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Mudrick, Shorting Malls, Says Drop in Retail Is `Forever Trend'

Mudrick is one of a growing number of hedge fund managers who are positioned to profit from a collapse in the sector, which could spur a wave of defaults. 

(Bloomberg)—Jason Mudrick, whose $1.6 billion Mudrick Capital Management specializes in distressed investments, says he’s betting that the struggle among retailers is here to stay.

“This is a forever trend,” Mudrick, whose Mudrick Distressed Opportunity Fund gained 38.7 percent last year, said in an interview on Bloomberg Television Monday. “When you think about how things are going to look 10 years from now, or 20 years from now, our parents will be dead, our kids will be adults – you think more people are going to be shopping online or less? This is the Amazon effect and it’s here forever.”

Mudrick is one of a growing number of hedge fund managers who are positioned to profit from a collapse in the sector, which could spur a wave of defaults. Mudrick said he’s targeting securities backed by loans taken by beleaguered mall and shopping center operators who have seen bad news pile up for their anchor chains, including Macy’s Inc. and J.C. Penney Co. He owns credit default swaps on those securities, and said his firm also owned protection against Neiman Marcus Group Inc., which has an active and liquid derivatives market.

While in the past retailers have cited a merchandising problem, now “they’re all saying we need to shrink our footprint,” he said. “I would describe this as a paradigm shift.”

J.C. Penney said in February it plans to shutter up to 140 stores, and Mudrick expects the retailer to close a hundred more locations. Macy’s decided last year to shut some 100 outlets, while Sears Holdings Corp. said it will move to close about 150 locations. These decisions will crush C- and D-level malls, said Mudrick.

Delinquencies on retail loans have risen to 6.5 percent, a percentage point higher than commercial mortgage-backed securities as a whole, according to Wells Fargo & Co.

--With assistance from Rachel Evans and Matt Scully.To contact the reporters on this story: Katia Porzecanski in New York at [email protected] ;Erik Schatzker in New York at [email protected] To contact the editors responsible for this story: Margaret Collins at [email protected] Vincent Bielski

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