Bonds

BAA shouldn’t change its E2.9bn bond deal

10 Feb 2006

Bond investors are up in arms because Ferrovial s highly leveraged approach to BAA has caused bonds to fall in value. They now want a change of control clause inserted into the deal, but doing so would be a poison pill that isn t in shareholders interest.

Public companies mimic LBO structures

10 Feb 2006

Look at US IT services firm, ACS. It is borrowing $3.3bn to buy back 45% of its shares after talks to sell to private equity fell through. While leveraged recaps of public firms can create value, there s a risk companies will overpay for their stock.

BAA gives in on bond deal

10 Feb 2006

In agreeing to insert a changeofcontrol clause into its recent E2.9bn bond, it may seem that the group is selling shareholders short. But the bondholders have been able to argue that Ferrovial s leveraged approach to BAA gave them the ability to wriggle out of the deal.

Bernanke must earn his spurs as inflation-fighter

27 Jan 2006

The market expects just two more rate hikes, totaling 50 basis points, from the Federal Reserve. However, with the economy strong and credit conditions easy, Helicopter Ben may have to raise rates more than that.

Ineos cleverly exploits appetite for yield

27 Jan 2006

The UK chemicals group has succeeded in squeezing better terms for the financing package accompanying its E7.4bn purchase of BP s Innovene. Ineos has proved that, for the right deal, debt issuers can drive a hard bargain in this market.

Private equity could call TDC bondholders’ bluff

25 Jan 2006

TDC s creditors have overplayed their hand by rejecting the company s new private equity owners offer to buy them out at par. The bondholders are overestimating their nuisance value. The private equity firms don t need to buy them out to get the deal done.

Oracle leads tech to leverage-land

13 Jan 2006

The software giant has taken its first steps into the world of indebtedness. Other tech companies with stable cash flows should follow suit. But they also need to deal with their stockpiles of cash. This should foster further M&A in the tech sector.

It’s time for a bondholder value revolution

13 Jan 2006

Leveraged buyouts and other actions friendly to shareholders continue to threaten already meagre returns on corporate bonds. Investmentgrade bond investors need stronger covenants as defence against the depredations of shareholders. Now is the time to demand them.

2005 a banner year for US credit growth

30 Dec 2005

Credit growth has continued to outpace economic expansion. As a result, the US economy avoided its day of reckoning last year. However, it hasn t been cancelled. And with more debts to pay, the final bill will be much higher.

TDC buyers learn from ISS rumpus

23 Dec 2005

They are buying back the Danish telco s existing bonds. The ISS buyout caused a huge legal row when its buyers left the bonds in place. But this probably wasn t a tough decision. It avoids a huge fuss, and doesn t hurt the buyers economically.

Another US bank gets hit by the yield curve

15 Dec 2005

Commerce Bancorp is paying the price for rapidly growing its securities portfolio. The flattening yield curve is hitting profits. Its portfolio restructuring is not enough. The bank is likely to come under pressure next year, and may be forced to raise more capital.

Fed rate hike brings closer yield-curve inversion

13 Dec 2005

If the Fed continues raising rates, the yield curve is likely to invert next spring. This will not necessarily hurt the US economy. The example of New Zealand shows that rising shortterm rates attract hot money flows, boosting home prices and consumer spending.

DP World hits on neat petrodollar arbitrage

1 Dec 2005

The Dubai ports operator has come up with an innovative $2.8bn convertible bond to finance its acquisition of P&O. It is exploiting a valuation discrepancy between the redhot Abu Dhabi stock market and relative tepid Western ones.

Greater fools support buyout recap boom

29 Nov 2005

The vogue for recaps looks daft from the lenders perspective. They are taking more risk, and being paid less for it. But lenders aren t dumb. They ll lend so long as the secondary market will buy the risk.

Investors pay high price for Wind junk bonds

23 Nov 2005

On current mobile sector multiples, the Italian group s enterprise value barely exceeds the value of its debt. Yet bond investors are receiving singledigit coupons on their investment. That s pretty punchy.

Italy should open its bond markets

27 Oct 2005

Icap, the UK broker, is moving closer to establishing a market for Italian sovereign debt to rival local exchange MTS. After the Antonveneta debacle, Italy has a second chance to show it will treat foreign entrants into its financial services markets fairly.

Bond conundrum stretches ever further

21 Sep 2005

The UK s new 50year inflation linked bond will yield a feeble 1.2%. Compare that to the 3.3% yield on inflationprotected equities. But demand for the issue has been strong. This is a triumph of regulation and a strange bond market over common sense.

Fed has mishandled oil price boom

16 Sep 2005

The policy of accommodating high oil prices with loose money has kept demand buoyant but stored up future trouble. America s debt problems are worse; and inflationary risks have increased. The Fed should increase rates sharply to rein in demand.

Wind forced to pay up to get debt away

2 Aug 2005

The buyers of Europe's largest leveraged buyout must pay an extra 1% to syndicate an E700m slice of junior debt. That may not sound much in a E12bn deal. But Wind has still to sell scads of junk debt. If the cost of that rockets too, it could hurt.

Bayer jumps on hybrid debt bandwagon

19 Jul 2005

The German conglomerate s successful E1.3bn offer is just the latest in a string of issues of deeply subordinated debt. The high yields are proving popular with investors. The debt s ability to cheaply finance takeovers will attract more issuers.