Bonds

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.

Wellcome Trust taps exuberant credit markets

3 Jul 2006

The £12bn UK charity is borrowing £500m at ultralow rates for 30 years and using the proceeds for investment. Loose credit markets make this a smart bit of arbitrage. Unfortunately, few other European charities are likely to follow.

Goldman’s Eurotunnel plan isn’t greedy

28 Jun 2006

The investment bank and its partners are paying a reasonable price for the tunnel owner. It won t be easy to get a good return. Some investors are unhappy. But they would have more credibility if they explained their plan and said if they would put up more cash.

Eurotunnel uses questionable tactic

28 Jun 2006

The company has asked regulators to examine the actions of junior creditors who have come up with a rival restructuring plan. Eurotunnel may hope this will pressurise bondholders into negotiations. But it doesn t seem like the creditors have done anything wrong.

European hybrids could be past their sell-by date

26 Jun 2006

Riskaverse investors have been dumping the once popular hybrid bonds, causing prices to fall off a cliff. That doesn't bode well for companies planning to use them for financing. It is also a sign that leverage levels in M&A may have peaked.

Bond investors claw back some power

22 Jun 2006

Judging by recent bond issues by Saint Gobain and Bayer, bond investors are becoming more risk averse and more demanding. That said, issuers still have the whip hand. There s still a lot of liquidity sloshing around and pricing remains tight for now.

BAA bondholders may skewer Ferrovial

22 Jun 2006

The Spanish group may have to buy back some of BAA's bonds at a fat premium because of the leverage it plans to load on the UK group. It is sometimes possible to negotiate around such clauses. But Ferrovial s highly geared bid makes bondholders likely to press for an exit.

Are zombie equities a new asset class?

20 Jun 2006

Traders disappointed by the measly returns on distressed debt have started snatching up bankrupt companies shares instead. The returns can be phenomenal. But the risks are much higher. Shareholders in bankrupt firms usually walk away with nothing.