Citadel raises $500 million -- a hedge fund bubble?

Last week, Citadel Investment Group sold one of the first ever unsecured bond offering issued by a hedge fund, according to Barron's magazine (subscription required). Citadel raised $500 million.

Apparently, Citadel will offer a total of $ 2.0 billion in unsecured bonds. A co-founder of Hennessee Group, a professional hedge-fund cheerleader, called the move "brilliant." The cheerleader further commented that it is cheaper than raising capital from limited partners.

The issue got a triple-B rating from Fitch and the deal was two times oversubscribed.

According to this Fly, this has all the warning signs of a disaster waiting to happen. Does Citadel now take all that leverage and borrow more from its prime broker, borrowing more against its already leveraged balance sheet?

This sounds similar to the mortgage and housing bubble which is currently unwinding. The housing bubble hit peak valuations when lenders were willing to lend at full value or in excess of the full value of the underlying real estate, requiring no equity investment.

In Citadel's case, why raise equity capital from limited partners when you can go out and borrow it? Who needs equity? Good luck bondholders.