NEW YORK, NY - NOVEMBER 03:  Chairman of Icahn Ent
Chairman of Icahn Enterprises Carl Icahn participates in a panel discussion at the New York Times 2015 DealBook Conference at the Whitney Museum of American Art on November 3, 2015 in New York City. (Photo by Neilson Barnard/Getty Images for New York Times)
  • Billionaire investor Carl Icahn is piling into a massive bet against malls and could see a $400 million (R5.8 billion) windfall if shopping center owners default on their loans, The Wall Street Journal reported Tuesday.
  • Icahn has already lost millions on the short trade, but he plans to hold his position and may even add to the stake, people familiar with the investment told WSJ.
  • The investor's trade involves credit-default swaps tied to the mortgage-based CMBX 6 index. Should malls included in the index default on their debt, Icahn could see his investment's value skyrocket.
  • The swaps are similar to those made famous by Michael Lewis' bestselling novel "The Big Short" and the 2015 film adaptation.
  • For more stories, go to Business Insider SA.

Billionaire investor Carl Icahn recently piled into a bet against malls and could profit more than $400 million (R5.8 billion) if shopping center owners can't pay off debt, The Wall Street Journal reported Tuesday.

The billionaire has already lost millions short-selling mall debt, but he plans to hold his position and may even add to his stake, people familiar with the investment told WSJ. Icahn is likely the single biggest short-seller of shopping center debt, traders told WSJ.

Icahn's trade involves the purchase of insurance contracts called credit-default swaps. The assets protect holders against defaulting commercial-backed securities. Icahn's contracts are tied to the CMBX 6 index, which tracks 25 commercial-mortgage-backed securities and is exposed to loans made to malls in 2012.

The assets are similar to those used by a small set of traders who profited from the 2008 housing collapse. The trade was made famous by Michael Lewis' bestselling novel "The Big Short" and the 2015 film adaptation of the same name.

Investors expecting a rise in mall defaults purchase credit-default swaps and subsequently push the CMBX 6 lower. If the index tumbles, Icahn's swaps gain value.

Icahn may need to suffer losses for a while longer before he sees his bet pay off. Though malls have suffered from rising vacancies as online shopping surges in popularity, landlords have been mostly successful in finding new tenants and paying off their debts. Just three of the 40 malls connected to the CMBX 6 have been late to pay their loans since 2012, WSJ reported.

A section of the index representing its riskiest loans has climbed 20% year-to-date, according to WSJ, signaling a healthy outlook for malls included in the portfolio and growing confidence around their ability to pay off debt.

Icahn's position puts him in direct conflict with Putnam Investments and AllianceBernstein, two massive money managers touting a positive outlook for malls. The opposition is "the biggest battle in the mortgage bond market today," MP Securitised Credit Partners principal Dan McNamara told WSJ. The obscure mortgage-backed index could yield more than $10 billion (R147 billion) in profit for either side of the trade, he added.

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