Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
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Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#2Companies 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'll learn a lesson from this, although I suspect opportunity cost will prevent many from being more prudent.
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#3Companies 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…
>I suspect opportunity cost will prevent many from being more prudent.
I suspect people will not evolve to be more prudent unless there are some regulatory changes.
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#4Companies 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…
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.
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#5Companies 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…
>I suspect opportunity cost will prevent many from being more prudent. I suspect people will not evolve to be more prudent unless there are some regulatory changes.
Bankruptcies or stock offerings at crisis prices would help too. For instance, the airline Norwegian just accepted 95% dilution of existing shareholders in order to qualify for a government emergency loan. If they'd refused this, they would have gone bankrupt.
Some shareholders were expecting a government bailout, and got a real beating. They're going to think twice about expecting a government bailout the next time.
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#6Earlier quoted context omitted.
>I suspect opportunity cost will prevent many from being more prudent. I suspect people will not evolve to be more prudent unless there are some regulatory changes.
Bankruptcies or stock offerings at crisis prices would help too. For instance, the airline Norwegian just accepted 95% dilution of existing shareholders in order to qualify for a government emergency loan. If they'd refused this, they would have gone bankrupt. Some shareholders were expecting a government bailout, and got a real beating. They're going to think twice about expecting a government bailout the next time.
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.
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#7Earlier quoted context omitted.
Bankruptcies or stock offerings at crisis prices would help too. For instance, the airline Norwegian just accepted 95% dilution of existing shareholders in order to qualify for a government emergency loan. If they'd refused this, they would have gone bankrupt. Some shareholders were expecting a government bailout, and got a real beating. They're going to think twice about expecting a government bailout the next time.
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 at a favorable price. This led to a 95% dilution for existing shareholders.
If they hadn’t done this, proper bankruptcy would have been the next step.
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#8Earlier 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…
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?
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#9Companies 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…
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
Re: Junk-Bond Sellers Desperate for Funding Swallow Yields over 10%
#10Earlier 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…
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