Bonds

Bond market balance of power shifts to investors

3 Oct 2006

The week that news broke of Europe s largestever Pik financing may be an odd time to question the strength of the credit markets. But the last few months has seen investors push for the return of a form of bondholder protection last seen after the dotcom crash.

Stakebuilders shouldn’t use CFDs

28 Sep 2006

While it's clearly wrong for investors to use derivatives to build stakes, it s impractical to force all CFD holders to disclose positions. The information would overload the system. A better idea would be to only punish those who convert undisclosed CFDs into stakes.

Bondholders flex muscle over technical defaults

30 Aug 2006

True, bond investors have been slow to put up much of a fight against valuedestructive actions like leveraged buyouts. But as more companies delay regulatory filings, bondholders are crying default. It s an incremental move in the bondholder value revolution.

Increased debt explains corporate wall of cash

21 Aug 2006

Cash on corporate balance sheets has exploded over the past five years nearly tripling at FTSE 100 companies. This probably isn t pessimism. The oil bonanza explains part. But mostly it appears to be a function of rising levels of net debt.

Terrorism threat a red herring for BAA’s £12bn financing

17 Aug 2006

The financing for Ferrovial s takeover of BAA isn t in jeopardy despite losses from flight cancellations. The real hurdle will be convincing existing bondholders to migrate their bonds into the new financing structure.

Debt quality starts to slide

17 Aug 2006

In the last two months, 16 companies have fallen into junk, while only four have risen up to investment grade. The totals aren t huge, but so much deterioration in prosperous times is alarming. If a recession comes, a debt disaster could follow.

Suntrust’s stumble could herald rising bank woes

16 Aug 2006

Investors weren t convinced by the Atlanta bank s explanation that a $200m troubled loan was just a one off. The stock dropped 4%. This could mark the start of a broader credit downturn. With loan demand falling too, US bank earnings look vulnerable.

Investors prefer bonds

16 Aug 2006

Fund managers are more comfortable with bond valuations, according to a Merrill Lynch survey. But with yields low relative to inflation, there s little room for error in their calculations.

Credit derivatives offer new arb opportunities

10 Aug 2006

Legal uncertainties in derivatives contracts mean that when corporate events occur, creditdefault swaps aren t trading as expected. That means the way investors trade CDS is changing. There is more uncertainty, and consequently more arbitrage opportunities. Legal uncertainties in derivatives contracts mean that when corporate events occur, creditdefault swaps aren t trading as expected. Look at the VNU buyout and demerger of GUS. There is more uncertainty in the CDS market and where there is uncertainty there is a profit.

Air China’s IPO turbulence may be a warning sign

10 Aug 2006

Until now investors have been willing to buy just about anything that the Chinese government has put up for sale. But the downsizing of Air China's new issue by nearly 40% is a sign that the demand for stateowned companies is waning.

Philips’ chipmaker to raise record E4.5bn in junk

8 Aug 2006

It seems brave to cut out the loan market completely when there were jitters last week in the high yield bond market. But KKR's strategy actually makes sense. For a cyclical chipmaker like Philips, the bond market offers particular advantages.

UK starting to pay for borrowing binge

7 Aug 2006

Debt defaults are up 68% this year. That was enough to get lenders to start moaning. But it is far from a crisis yet. Barclaycard is still earning a decent 13% return. And mortgage lenders aren t holding back. There s room for much worse news.

High yield bonds no longer a slam dunk

7 Aug 2006

So far this year, raising debt in the junk bonds markets has been easypeasy. But last week s VNU deal shows that s not the case anymore. In fact, the warning signs have been around a while. Investors seem to be getting spooked by the spectre of rising interest rates.

GUS should stand up to defiant bondholders

1 Aug 2006

The UK retail conglomerate has done its best to find a constructive solution with the bondholders trying to disrupt its planned demerger. Most the bondholders have accepted its terms. The holdouts are trying to bully it into handing over some cash. GUS should call their bluff.

Now everyone can play in credit derivatives

28 Jul 2006

A new product from JP Morgan has opened up the world of credit derivatives to all fund managers, even if they re not credit specialists. But the exoticallynamed iTraxx Total Return Swaps is no capitalprotected investment. It has big risks. Investors need to be careful.

How Ferrovial squared the circle

26 Jul 2006

The answer is an unusual financing technique used by UK water companies. But for this to work, existing BAA bondholders must buy in. The mystery was always how Ferrovial could borrow £12bn equivalent to three times leverage and keep BAA's credit rating.

New LBO record a fading target

19 Jul 2006

Wall Street's hopes for a buyout bigger than RJR now look dubious as financing costs are surging amid heightened risk aversion. Deals already done, like Toys R Us, are struggling to refinance. And an $18bnplus LBO of HCA was scuppered by growing borrowing costs.

Eurotunnel management hides behind courts

17 Jul 2006

It s a clever tactic for Eurotunnel to ask the French courts for help by filing for safeguard bankruptcy protection. It takes the pressure off management to hammer out a deal. If negotiations fail, at least Eurotunnel can say it wasn t entirely its fault.

Moody’s and S&P have little to fear from reform

14 Jul 2006

Government regulation currently limits entry into the ratings business. Washington intends to change these rules. But the market share of leading raters is unlikely to decline. That's because the business is a natural monopoly.

Eurotunnel should level with shareholders

13 Jul 2006

Talks are bogged down because the board is reluctant to tell investors the ugly truth. Its latest wheeze: to file for protection. This may be understandable given the directors came to power on a shareholder revolt. But shareholders may get less in the long run.