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Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
11–20 of 73 posts
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#12Companies were over-leveraged and didn't have cash stockpiles. They're trying to get liquid cash so they don't have to divest of assets in a market that isn't buying or go into chapter 11. All the same, people are willing to extend loans because they are long on the economy, recovery, and return to normalcy. The engines are starting again. The biggest issue was that companies were over-leveraged with debt. Maybe we'l…
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Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#13Earlier quoted context omitted.
Why do you consider that unreasonable, when the free-market option is bankruptcy? They got to keep 5%, rather than 0! The terms of the emergency loan was a certain debt:equity ratio, so in order to qualify, their very high debt load had to be reduced. This could be accomplished in any way the company desired, and it turned out that the only viable pathway was to allow bondholders to convert their loans to new shares…
I wonder why this mechanism (converting potentially derelict bonds into equity) isn't more widespread. In cases where the underlying company reasonably could be expected to continue operating were its debt ratio lowered, apart from legitimate resistance of bondholders expecting debt+interest payments why wouldn't this outcome be preferred to bankruptcy?
This is actually one of the possible outcomes of bankruptcy. The business may be liquidated but it's not the only option. There may be a restructuring and creditors may become the new shareholders after the orginal shareholders are (in most cases) wiped out.
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#14Earlier quoted context omitted.
Don't these yields suggest that people actually aren't willing to extend the loans which is why the yields are spiking. Double digit yields in a deflationary economy should indicate that these loans are being made with a high expectation of default.
I am surprised the Avis has to goto the junk bond market - the cruise line I can sort of get
The rental car market is strongly tied to the travel (both business and leisure) which has crashed. Why would it be surprising if a rental car company is in financial trouble?
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#15Earlier quoted context omitted.
Don't these yields suggest that people actually aren't willing to extend the loans which is why the yields are spiking. Double digit yields in a deflationary economy should indicate that these loans are being made with a high expectation of default.
I am surprised the Avis has to goto the junk bond market - the cruise line I can sort of get
I'd assume most of their business is renting to people who've just flown somewhere, and right now hardly anyone is doing that.
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#16Earlier quoted context omitted.
Why do you consider that unreasonable, when the free-market option is bankruptcy? They got to keep 5%, rather than 0! The terms of the emergency loan was a certain debt:equity ratio, so in order to qualify, their very high debt load had to be reduced. This could be accomplished in any way the company desired, and it turned out that the only viable pathway was to allow bondholders to convert their loans to new shares…
I wonder why this mechanism (converting potentially derelict bonds into equity) isn't more widespread. In cases where the underlying company reasonably could be expected to continue operating were its debt ratio lowered, apart from legitimate resistance of bondholders expecting debt+interest payments why wouldn't this outcome be preferred to bankruptcy?
Perfectly agree that this is preferable to bankruptcy. I might have worded myself ambiguously -- the emergency government loan might be a sort of bailout, but it wasn't a gift to the shareholders. When I hear bailout, I normally expect the latter.
The government is expecting the loan to be repaid, and to make that expectation likely, they're requiring the company to use market mechanisms to strengthen its balance sheet. The result in this case is that existing shareholders are practically wiped out.
In the case of Norwegian, this is pretty clear-cut. They've been on the verge of bankruptcy before, and their losses now are mostly due to foreign routes shutting down. Even if you accept the somewhat dubious rhetoric that compensation is mandated when losses are partly due to government involvement, it doesn't apply to this case. There was no way they could service their debt during the Covid crisis.
Some sharehoders were expecting the government to give an unconditional loan to be defaulted on later, or participate in a stock offering at prices high enough to preserve their ownership percentage.
This is an unequivocal message to shareholders not to expect that sort of rescue operation in the future. Run your company with a debt ratio that will let you survive unexpected hardships, or accept the risk of facing such hardships on your own.
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#17Looks like we're setting ourselves up for a junk bond bubble down the road.
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#18Earlier quoted context omitted.
I don't know that I see 95% dilution as totally reasonable terms for a bailout (though I know absolutely nothing about the details of that example), but making it clear that bailouts come with a cost seems like a good development ... so good on the Norwegian government for doing that.
Why do you consider that unreasonable, when the free-market option is bankruptcy? They got to keep 5%, rather than 0! The terms of the emergency loan was a certain debt:equity ratio, so in order to qualify, their very high debt load had to be reduced. This could be accomplished in any way the company desired, and it turned out that the only viable pathway was to allow bondholders to convert their loans to new shares…
Well now that I know it was a binary choice, yes taking the 95% dilution seems like the best option without knowing anything else about that company's financials.
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#19Looks like we're setting ourselves up for a junk bond bubble down the road.
Central banks will just buy them onto their balance sheets. Its already begun:
https://ftalphaville.ft.com/2020/04/30/1588254981000/How-sho...
https://www.afr.com/markets/debt-markets/why-the-rba-is-lend...
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#20This is unsustainable debt levels. It's like living on credit cards. These companies and countries should be downsizing.