Bonds

New credit index sharpens buyout bears’ claws

21 May 2007

An index of credit derivatives on junkrated loans is about to debut. It could further stir the frothy LBO debt market. But it may also lure some credit bears out of their lairs. They can use it to bet on a buyoutbusting downturn in the junk loan arena.

Cablevision shareholders get a decent offer – finally

3 May 2007

Its independent directors sent the founding Dolan family packing twice before agreeing to a $22bn deal. The price is fair. The deal now has a better chance of being accepted. By holding out for a fair sum the directors have paradoxically done the Dolans a favour.

Amgen shows perils of being aggressively clever

20 Apr 2007

The biotech giant s sale of $5bn worth of cheap convertible debt to buy back stock looked mighty smart last year. The only problem the stock is down 12% since because Amgen s attempt to expand its main drug into a minor area blew up in its face.

Do credit derivatives undermine monetary policy?

19 Apr 2007

They might, warns ECB chief Trichet. The distribution of risk among unregulated firms may further dull central banks already blunt tool. If so, a market that has recently grown by leaps could make it harder for policymakers to mop up excess liquidity and rein in inflation.

Moody’s bank ratings may be stock bellwethers

12 Apr 2007

The firm watered down its new system, which assigned top ratings to banks that can rely on bailouts, after credit investors squawked. But the system may have value for stock buyers. The topranked banks aren t subject to the market s full discipline. They should be avoided.

Eurex credit debut shouldn’t spook dealers

3 Apr 2007

The exchange convinced only one major firm to support its new credit futures contract. But dealers don t need to freeze it out. When Wall Street s big products debut on exchanges, they typically capture only a fraction of the market s potential business.

Oil-rich Gulf looks to diversify funding

29 Mar 2007

Corporate bonds from companies in the region grew almost sixfold in 2006, to $18.2bn. Much of the money came from foreigners. Why not just borrow from oilrich neighbours? International bonds provide prestige and help prepare for a less oilrich future.

Junk debt investors ignore rating agencies

28 Mar 2007

Credit investors keep piling into highyield debt, pushing spreads down to historically low levels. The agencies are predicting higher defaults in 2007, perhaps tipping the bonds into loss. Of course, the agencies were too gloomy last year.

Some credit investors have power

26 Mar 2007

Excess liquidity has given borrowers the upper hand almost everywhere. But European highgrade lenders have clawed back some ground. Marks & Spencer is the latest borrower to offer protection against junking. The explanation: excess liquidity has made the risk unbearable.

CLOs susceptible to a fire sale

23 Mar 2007

If the managers of these funds of highrisk debt take fright, they might try to head for the exit simultaneously, causing a rout. There would, of course, have to be a trigger. But if the market jitters of recent weeks return, CLOs could be a flashpoint.

LBO borrowers have lenders over a barrel

19 Mar 2007

TDC isn't bothering to refinance its buyout debt. It is simply "repricing" its existing debt to get a better deal. Lenders have little choice but to comply. Despite the turmoil in US subprime borrowing, it seems demand for LBO debt is stronger than ever.

Loose lending may ensnare LBO borrowers

19 Mar 2007

Easy terms on LBO loans will give fundamentally strong companies extra breathing room to ride out economic downturns. But those with serious problems could use this flexibility to delay tough decisions, increasing the risk they will eventually default. Socalled "covenantlite" LBO loans will give fundamentally strong companies extra breathing room to ride out an economic downturn.

US consumption robust despite subprime woes

19 Mar 2007

A wave of defaults among less creditworthy homeowners will create only a modest drag on consumer spending. But problems at the lower end may filter up. If house prices fall further and lenders pull back, mortgagedfinanced consumption may shrink.

LBO shops still have the whip hand over bond investors

19 Mar 2007

US bond investors are howling after discovering some poison puts safeguards against LBOrelated losses are not that toxic. In the tugofwar between debt investors and LBO shops, the former will only prevail if there is enough hemlock in the chalice.

Could subprime meltdown derail LBO boom?

16 Mar 2007

Carlyle s boss points to several factors that could trigger the end of the private equity bonanza, from a terrorist attack to rate hikes. One missing from his list is the subprime debacle. Problems with mortgage loans could well affect investor appetite for buyout debt.

Microsoft image-polishing campaign falls short

6 Mar 2007

By lambasting Google, the software firm is strengthening ties to the search giant s enemies and trying to improve its own battered image. But its escalating war with European regulators over antitrust issues badly dents Microsoft s campaign to be seen as the good guy.

Buyout shops can dodge bond meltdown temporarily

5 Mar 2007

The sharp widening in highyield bond spreads last week caught some buyout financiers off guard. Univision, in particular, had to pay more. But LBOs aren t dependent on bonds any more. Buyout shops raise most of their debt in the loan market. It too will slide, but more slowly.

Subprime mortgage index bets are a crapshoot

2 Mar 2007

Deutsche Bank s $250m windfall from shorting a mortgage benchmark made reaping a profit look easy. And subprime prospects remain grim. But the index doesn t reflect reality. It s pushed around by onesided trades. That will make it hard to cash out of winning positions.

Will history repeat itself in credit markets?

28 Feb 2007

If the pattern set since 1920 still holds, then the credit cycle should turn in 2007. Moody s expects history to be a reliable indicator. But this time could be different. There seems to have been a Great Moderation in economic cycles. The turn may be delayed and very soft.

Another debt bomb drops on investors

26 Feb 2007

Credit Suisse is launching an exotically named synthetic CFO. That s not a finance director constructed of plastic and fibre. Rather, it s a fundoffunds leveraged up four times. Backtested, the equity tranche returns 30% a year. Looking forward is another matter.