Bonds

US credit card law has silver lining

13 May 2009

Banks are lobbying furiously against legislation that would restrict a host of common practices. They say it will force them to cut credit to weak borrowers. But they re already doing so. And if it makes banks manage their credit risks more intelligently, that s a good thing.

Credit hedgers not all villains in GM saga

12 May 2009

Some fear hedged bondholders will oppose the US government s deal because they can reap gains on CDS contracts by tipping the carmaker into bankruptcy. But they probably hedged before GM s trouble became acute meaning they re not just opportunistic speculators.

Microsoft’s debt offer matters – to Microsoft

12 May 2009

The software giant is set to issue nearly $4bn of bonds. It doesn t need the cash, not with a $170bn market capitalisation, prodigious cash flows and no debt. But the rapturous reception of Microsoft s first ever bond issue says more about the company than the credit markets.

US government bond bubble may soon deflate rapidly

5 May 2009

Seasonal funding needs, huge government borrowing requirements, green shoots of economic stabilisation or recovery and the inflationary effect of Fed liquidity creation are combining to send Treasury bond yields upward. They may go a lot higher, quite quickly.

US insider trading case could weaken CDS critics

5 May 2009

Regulators charged two people with fraudulently reaping $1.2m in the credit default swap market. It s the first US insider trading case involving these instruments, and if prosecuted successfully, it would demonstrate that the CDS market isn t entirely lawless.

Double bankruptcies are a warning for vultures

28 Apr 2009

US department store Fortunoff is being liquidated after filing for bankruptcy for the second time. Filene s Basement is also about to make a repeat appearance in bankruptcy court. This shows that buying failed companies, even on the cheap, isn t necessarily a bargain.

CDS critics can’t have it both ways

17 Apr 2009

Some want credit derivatives trading limited to investors who own underlying debt. But others are now blaming creditors who own credit default swaps for forcing companies into bankruptcy. The arguments directly conflict. Better just to try to ensure the swaps are traded safely.

US backing can’t dispel Citi credit concerns

14 Apr 2009

You d think government support of the megabank including $45bn of taxpayer equity and a partial asset guarantee would ease creditor concerns. But default protection costs twice as much for Citi as it does for BofA. Despite assurances, bondholders are bracing for pain.

G20 to bail out bank bondholders

3 Apr 2009

Although it isn't spelt out, that s the implication of one of their papers and confirmed by knowledgable people. Regulators are too afraid of the knockon effects of even subordinate debt defaults. The quid pro quo is that such debt will, in future, not count as capital.

Convertible market flips back to life

2 Apr 2009

After several months of silence, US companies rushed to issue convertible bonds in the last week of March. As long as balance sheets are stretched, stock volatility is high and investors think share prices have bottomed, the trend has room to run.

Running the numbers on NXP’s debt exchange

1 Apr 2009

Only a fraction of bondholders took up the exchange offer, while nearly half Freescale s holders agreed to its recent deal. It looks like NXP needed to offer a sweeter deal. Breakingviews provides a calculator to help do the debt swap maths.

UK bank rescues heighten restructuring complexity

1 Apr 2009

RBS and Lloyds are putting risky corporate loans into the UK assetprotection scheme, capping future losses. That could drive a wedge between them and other creditors if borrowers have to undergo a restructuring. It may also see fewer distressed loans sold cheaply to hedge funds.

Ireland faces painful adjustment or ugly euro exit

31 Mar 2009

S&P has downgraded Ireland's credit rating, as the country's growth and tax revenues have plummeted. Ireland's fiscal accounts look unsustainable. A big, painful adjustment is required if it is to remain in the eurozone. But exiting would be agony too.

NXP’s $1.9bn debt exchange shows signs of failure

19 Mar 2009

The Dutch chipmaker s attempt to cut debt by offering bondholders a chance to swap their notes for supersenior loans appears to have hit trouble. A mere 10% takeup at the half way stage suggests NXP s private equity owners may have to share the pain sooner rather than later.

Goldman risks biggest black eye in vulture brawl

19 Mar 2009

Buyout firms are plunging into distressed investing. Goldman is the latest to ask investors for their blessing to buy the debt of troubled companies. This could pit one private equity player against another and sometimes against itself. That s especially dangerous for Goldman.

Asia must develop local currency bond markets

18 Mar 2009

With stock markets down and banks not lending, Asian countries need to develop domestic corporate bond markets. That requires macroeconomic and tax policies that encourage bond investment, transparent price discovery and an investment culture oriented toward the long term.

ArcelorMittal shows strength with E1bn convert

17 Mar 2009

Investors lapped up the steel giant s bond. But the fourtimes oversubscription reflects generous terms; a near 8% yield with a modest conversion premium. ArcelorMittal is paying up to get financial flexibility, and support for its claim that it doesn t need a rights issue.

GE downgrade guts rationale for finance unit

12 Mar 2009

It just lost its tripleA rating, a big reason for keeping its industrial and finance arms together. This shouldn t affect its financing cost markets have ignored the rating for some time. And its customers should still be able to get financing from GE Capital after a split.

TPG and Apollo salami slice Harrah’s creditors

5 Mar 2009

The casino company controlled by the LBO firms is asking bondholders to take yet another haircut in a debt exchange. The prices on offer look tempting relative to market. But creditors set precedents and expectations each time they acquiesce. It s time to get tough.

Talf could be a steady earner for investors

4 Mar 2009

The US government s trilliondollar scheme to kickstart the assetbacked securities market poses risks for taxpyayers and will further distort the capital markets. But handing out cheap loans could be a boon for hedge funds, banks and the like.