Debt

Puerto Rico’s 46 pct haircut may grow, not reduce

1 Feb 2016

The broke U.S. territory is suggesting creditors write off nearly half some $49 bln of debt. There’s also an earnout if – big if – growth picks up enough. Puerto Rico would still be heavily indebted. Lenders will see it as an opening gambit, but they need to accept reality, too.

Monetary policy enters mysterious quantum realm

29 Jan 2016

Japan’s foray into negative rates typifies a world where conditions are so loose that traditional relationships break down. Take bond yield curves, which used to be able to foresee recessions. This handy warning system no longer behaves as expected in the new quantum paradigm.

UniCredit is acid test for EU hybrid bank bonds

22 Jan 2016

Yields on the Italian bank’s AT1 debt have jumped. Given these new instruments allow coupons to be turned off at any time, it’s logical for investors to fret about banks near trigger points. But it will show if banks and regulators are ready to use the weapons at their disposal.

Peru could use legal tip from Brazil or Argentina

21 Jan 2016

The Andean nation beats neighbors economically but may lag on the legal front. A court scandal over land-reform bonds has hedge fund Gramercy and others crying foul. Rio and Buenos Aires are learning market confidence comes easier with independent judges and a wish to negotiate.

Puerto Rico exposes dearth of bond vigilantes

7 Jan 2016

Tax perks and a thirst for yield meant bond buyers tolerated bad fiscal practices for years. They only seriously pushed up borrowing costs after the island’s $70 bln debt crisis became all too obvious. Foolish financial crowds had better wise up to other U.S. danger zones.

Chancellor: The illusion of debt-fuelled earnings

18 Nov 2015

Low borrowing costs enabled acquisitive drugmaker Valeant to ratchet up EPS with leverage. Earlier episodes of financial engineering - like Japan’s zaitech and the 1960s conglomerate boom - came unstuck after rates rose and stocks fell. It won’t be any different this time.

China margin finance squeeze is partial solution

17 Nov 2015

Regulators have halved the amount punters can borrow to buy stocks on China’s A-share market. That’s a step towards preventing another speculative bubble. But greater transparency and acceptance of short-selling are also necessary to put equity markets on a more stable footing.

Visa picks a tough time for $23 bln Europe deal

2 Nov 2015

The U.S. payments network is using an earnout, buybacks and other maneuvers to soften the blow of paying 61 times pre-tax earnings for its overseas cousin. It’s a crafty solution but the integration will take a while and distract management just as industry competition heats up.

Saudi banks can help to plug oily black hole

2 Nov 2015

A ratings downgrade for Saudi Arabia reflects the impact of falling oil prices, but the kingdom has economic levers it can still pull. Lenders are highly liquid, with room to fund a widening budget deficit. And if push comes to shove, Saudi can even sell bank stakes to outsiders.

Hadas: The world would be better off without debt

22 Oct 2015

Why do governments borrow instead of just creating money? Mostly because they always have. Why do companies feel the need to take on leverage? Foolish tradition. If the financial world were designed for today’s economy, fixed-rate reimbursable debt wouldn’t be created. 

Treasury’s Puerto Rico superbond looks half baked

15 Oct 2015

The U.S. territory and the federal government have discussed swapping some of the island’s $72 bln debt for a new bond paid from a Treasury-run kitty. The idea is politically fraught and may not work. It’s a poor substitute for a financial control board or Chapter 9 bankruptcy.

Euro zone rediscovers sloppy fiscal policy

15 Oct 2015

Deficits are creeping up in Spain, Italy and even growth star Ireland. Reasons include easy money and pre-election spending. As yet, the gaps aren’t dangerously big. What’s more worrying is poor spending decisions, slowing reforms and fiscal dissonance between member states. 

Renzi shrinks Italy’s political risk premium

14 Oct 2015

Prime Minister Matteo Renzi achieved an important step in his plan to reform Italy’s upper house. That should mean more stable governments. Italy’s bond yields are already close to pre-crisis levels. Narrowing the discount to France or Germany requires further economic reform. 

Senator’s Fannie Mae short tip had better pay off

8 Oct 2015

Bob Corker, a critic of the mortgage finance firm and its sibling, offered the highly unusual investment advice in a TV interview. Hedge funds want to keep Fannie and Freddie Mac alive, while Corker wants Congress to enact belated reforms. Sadly, his proposed bet is no certainty.

Spain’s Big Oil beast has balance sheet work to do

2 Oct 2015

Repsol’s balance sheet looks stretched. It’s good it has exceeded its $1 bln asset sale target but the $13 bln Talisman deal leaves a burden. It will struggle to finance capex and dividends in a $50- $60 oil environment. It needs a game plan for its forthcoming strategy day.

Emerging market debtor crisis likely and needless

1 Oct 2015

An IMF study shows that emerging market borrowers have taken full advantage of stimulative post-crisis monetary policy. Higher rates are set to bring more defaults and a liquidity squeeze. Such woes could be avoided easily, if companies and investors turned away from debt to equity.

Review: A human face for the foreclosure fiasco

25 Sep 2015

Seven years on and the financial crisis blame game is still alive and well. In his new film, “99 Homes,” Ramin Bahrani crafts a dramatic narrative that does the best job yet of capturing the complexity of assigning accountability to the collective U.S. housing delusion.

China dumping fortifies Thai steelmaker debt woes

22 Sep 2015

Dumping by China has pushed struggling Sahaviriya over the edge: Thailand’s biggest steelmaker is in talks to restructure $1.4 bln of debt. As rival Tata Steel has found, buyers for high-cost European producers are scarce. That suggests SSI’s creditors will have to take the pain.

Chicago’s lack of crisis makes fiscal rehab harder

21 Sep 2015

Mayor Rahm Emanuel wants a big property tax hike to shore up underfunded pensions. It’s an important move to get the city out of a $40 bln hole. Perversely, without lenders freaking out, as happened to New York in the 1970s and Detroit more recently, the job is actually harder.

Croatia takes EU bank political risk to new level

21 Sep 2015

The EU’s newest member has voted to hit lenders with the cost of switching citizens’ Swiss franc-denominated loans to euros. That’s tougher than similar Hungarian and Polish conversions, and the legal and social grounds are weak. As the ECB has warned, foreign investors may flee.