- Gross Says Health-Care Reform to Raise Liabilities
- Op Ed: ObamaCare Day One
- Citi’s Yard Sale Crimps a Turnaround Read the rest of this entry »
Tags: Bill Gross, bonds, Citigroup, Obamacare, Pimco
Distressed debt focus: CNBC interviews Avenue Capital’s Marc Lasry (4/17/09) ($F,$GM,$C)
On April - 17 - 2009
He says opportunities abound in distressed debt, especially in the debt of casinos…
Tags: Avenue Capital, Avenue Investments, bankruptcies, Bankruptcy, bonds, credit markets, Distressed, Distressed investing, Hedge funds, high yield bonds, Marc Lasry
Investment grade corporate bonds the next bubble to burst?
On February - 25 - 2009
That's what RBS credit strategist Bob Janjuah thinks.
Investors should be wary of buying investment-grade debt because defaults will “far exceed anything we have seen for 30 plus years,” Janjuah wrote in a note to clients. “And how would the IG corporate credit market fare if it knew that well over 50 percent of such issuers will see multiple ratings downgrades over the next 24 months?”
Standard & Poor’s said last week that 75 companies with rated debt of $174.5 billion are potential “fallen angels,” meaning investment-grade companies that may be downgraded to junk status. That’s the most in 18 years, according to S&P…..
“Major issuers” with ratings of AAA or AA, the top two categories, may be “seriously at risk of multiple downgrades,” Janjuah wrote.
Corporate Bonds Are Next ‘Bubble,’ RBS’s Janjuah Says – Bloomberg
Tags: bonds, Credit Crunch
Retrenchment: Looking for work at SAC Capital? Those with a bond focus need not apply
On July - 1 - 2008
Even some of the largest, most well heeled hedge funds are doing less bond business these days. So if you’re looking for a job on that side of the business, other than the new distressed funds that may be hiring, pickings may be slim. BreakingViews reports in the WSJ that even Stevie Cohen’s $16 billion SAC Capital has gotten rid of many of its bond geeks, with a more narrow focus on fixed income and that may reflect more pervasive hedge fund trends…
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Tags: bonds, Hedge funds, Revolving Door, SAC Capital
Junk Bonds: Expecting the worst bust since 2001?
On January - 29 - 2008
That’s what the spreads are implying according to Bloomberg. There are now 147 issuers with bonds trading at distressed levels vs around 60 back in November.
What’s a bust for some is a potential bonanza for others.
Junk bonds are off to their worst start
since 1990, falling 1.8 percent and triggering $17 billion in losses this month,
according to index data compiled by New York-based Merrill Lynch & Co.
Yields relative to Treasuries are rising at the fastest pace in at least 11
years as prices drop.The pain may only get worse.
Speculative-grade borrowers made up the majority of U.S. corporate debtors for
the first time last year, according to Standard & Poor’s. The default rate
will soar to more than 8 percent this year, the highest since Enron Corp.’s
collapse rippled through the market in 2002, estimates Zurich-based UBS AG.
Yields show retailers, homebuilders and mortgage companies are among companies
at the greatest risk as banks rein in lending.
Tags: bonds, Distressed
Warren Buffett bought $2 Billion TXU bonds
On December - 3 - 2007
Warren Buffett went on a high yield shopping trip last week, swallowing $2 Billion TXU Corp Bonds in two issues. Berkshire Hathaway bought $1.1 billion of the 10.25% bonds @ 95 and $1 billion of 10.5% PIKs @ 93…..
Warren Buffett put $2 billion of Berkshire
Hathaway’s cash to work at the end of last week when the company purchased
high-yielding bonds issued by Dallas-based power producer TXU Corp., according
to a person familiar with the deal.TXU was bought earlier this year in a
landmark $45 billion leveraged buyout led by Kohlberg Kravis Roberts. As with
many LBOs carried out in buoyant markets, banks agreed to make large so-called
bridge loans to help finance the deal, but they got stuck with those loans when
demand dried up for LBO-related debt. TXU can now use the proceeds from the bond
sale, whose total size was $3.9 billion, to help pay down the bridge loans. The
bonds were issued through a subsidiary.Buffett’s purchase will be welcomed by the
banks that made the bridge loans because, since the credit crunch started in the
summer, they’ve had to take large writedowns on LBO debt on their balance sheet.
Citigroup (Charts, Fortune 500), Credit Suisse, Goldman Sachs (Charts, Fortune
500), JP Morgan Chase (Charts, Fortune 500) and Lehman Brothers (Charts, Fortune
500) all participated in the debt financing of the TXU buyout, which originally
included $11.25 billion of bridge loans.
Buffett’s Berkshire buys $2B in TXU bonds – Fortune
Tags: bonds, high yield bonds
Offshore hedge fund tax breaks scrutinized; Looking back on the six year LBO run; Dan Dorfman on $1,000/oz gold and why it’s not impossible; Junk bonds setting up for a bigger rout?
On October - 1 - 2007
- Hedge fund offshore tax breaks at risk as the Senate Finance committee is
looking at taking away shelter benefits - The WSJ looks at the huge six year LBO run where they proclaim "The
party is over"; August and September deals registered the weakest totals
since November 2004 after the credit crunch hit. - Dan Dorfman on how $1,000 an oz gold is coming closer to reality
- Pummeled junk bonds recovering, but on borrowed time for a bigger rout?
Tags: bonds, Commodities, Distressed, Gold, Hedge funds
SEC probe: Were rating agencies “unduly influenced” to provide high sub-prime debt ratings?
On September - 27 - 2007
Did banks and other debt issuers pressure rating agencies to give sub-prime bonds higher ratings than they deserved? The SEC aims to find out:
The SEC, led by chairman Christopher Cox,
revealed it is looking in to whether agencies such as Moody’s and Standard &
Poor’s were "unduly influenced" by banks who paid for credit ratings.The revelation by Mr Cox during testimony before the Senate Banking Committee is
the clearest indication to date that regulators believe sub-prime mortgage bonds
were unduly inflated in return for payment.The news will send shivers among both the
banking and ratings fraternity, as the SEC is all-powerful in the world of
securities regulation, and will come down hard on any institutions found to have
broken the rules.SEC to investigate ratings agencies – Daily Telegraph
Tags: Banks, bonds, Credit Crunch, Ratings
Music to a vulture’s ear: S&P says defaults could soar to $35 billion in 2008
On September - 20 - 2007
The next big wave in corporate defaults could come in 2008 with some $35 billion in debt defaults according to Standard & Poors. And that amount could be conservative:
The amount of debt on which U.S. companies
fail to make interest payments could soar to $35 billion by the end of 2008 as
higher borrowing costs and wary investors limit access to credit, Standard &
Poor’s said.Companies rated B or lower by the New
York-based ratings company could default on $35 billion in debt during the next
15 months, up from $4.5 billion so far this year, according to an S&P report
published today.“These companies are highly reliant on
financial market access to support operational cash needs, but the plentiful
liquidity for high-yield borrowers is almost surely a thing of the past,”
S&P analysts led by Paul Coughlin said in the report. “Over the coming
year, there are some risks of a protracted economic slump, a sustained rise in
borrowing costs and the inability to satisfactorily execute planned asset
sales.”
Tags: bonds, Distressed, Ratings
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Tags: bonds, Film, Hedge funds, Private equity
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Tags: bonds, CDO, Emerging Markets, Henry Paulson, Private equity, Ratings
Something doesn’t smell right: new Vranos venture will take one of his entities out of its subprime debt
On July - 23 - 2007
Michael Vranos has a long successful history in mortgage bond investing. His Ellington Management currently oversees $5.4 billion in hedge funds / private accounts, a $1.2 billion managed account and nearly $23 billion in CDOs. This year his performance hasn’t been great with his mortgage backed credit funds up a measly 1.8% through the end of May and his overall return up only 3.81%. Now he wants to borrow $750 million to invest in distressed subprime debt. Maybe the timing is early; maybe it’s not. But something doesn’t smell very good about what he wants to do with the proceeds. The New York Times highlights his new July 12 dated private placement offering underwritten by Friedman Billings (which Vranos says the NYT never should have received):
Some $70 million of the offering’s
proceeds is expected to go toward buying equity in something called Spyridon
Holdings, which owns a real estate investment trust that Mr. Vranos’s
management company formed in May 2007. It bought $345 million of the riskiest
portions of mortgage pools, known as equity residuals, issued by the New Century
Financial Corporation, a subprime lender that declared bankruptcy in April. New
Century made the loans from 2003 to 2006, the filing said.The $70 million earmarked from Ellington
Financial’s investors to buy those assets will cover about 40 percent of the
roughly $170 million Spyridon put up to buy them — it borrowed the rest. In
return, Ellington Financial investors will receive 40 percent of Spyridon.No mention is made about the decline since
May in the values of subprime loans over all and in New Century loans in
particular. Even the lender’s high-grade paper is taking a hit — last week,
Standard & Poor’s downgraded by one notch several AAA-rated New Century
securities consisting of second lien assets.
Tags: bonds, Hedge funds
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Tags: Barclays, bonds, high yield bonds
Lloyd Blankfein is in a “high state of nervousness”….
On June - 28 - 2007
Goldman Sachs is "organizing" themselves "like the market is undervaluing risk." according to the CEO Lloyd Blankfein’s comments at the Wall Street Journal’s Deals & Deal Makers Conference yesterday…..
"The biggest risk we face would be a
very big crisis in the credit markets," Mr. Blankfein said. What could
cause that? A "sentiment shift," which "could unravel very
quickly" the vast wealth that has been created by the boom, he said.To be sure, Mr. Blankfein didn’t strike a
particular tone of nervousness. He said he doesn’t think the leveraged-buyout
boom has peaked — "We’ve called this peak a number of times," he
said. He also said that conditions "seem quite benign," marked by low
rates of inflation and low interest rates around the world. Of course, the
diminutive Wall Street titan then added, "I start at a high state of
worry."
Carl Icahn, on the flip side, thinks that the LBO market may have peaked.
Goldman’s Chief Admits Nerves – Wall Street Journal
Goldman CEO: World less risky, but stay on guard – Reuters
Tags: bonds, Carl Icahn, Goldman Sachs, LBO / MBO, Lloyd Blankfein
Carl Icahn the latest to say the LBO boom has ‘peaked’
On June - 28 - 2007
With the rise of shareholders activists – who are rejecting what are now more often being perceived as lowball LBO bids — not to mention balking bondholders and a more difficult financing environment, Carl Icahn thinks that the LBO market has peaked:
Billionaire financier Carl Icahn on
Wednesday told an investor audience that the spate of recent leveraged buyouts
has "peaked" because shareholders are balking at selling their
companies too cheaply and deal financing is getting more expensive.The 71-year-old financier, who has built up an estimated net worth of $13
billion by buying and selling companies over 25 years, predicted that LBO firms
won’t be able to win shareholder approval for deals as easily as in recent
years.
Tags: bonds, Carl Icahn, LBO / MBO
- CEOs losing M&A battle to private equity: analyst
- Bond yields risk for stocks: BofA
- Private equity buying spree no bubble: Levkovich
Tags: bonds, Private equity
Odd lots: Finance company bonds ravaged; Credit default swaps on a tear; Nearly half of all corporate bonds relegated to the junk heap
On May - 22 - 2007
- LBOs Attack Finance Company Bondholders; SLM, CIT Debt Unravels
- Credit-Default Swaps Spur Fastest Derivatives Growth in 9 Years
- Junk tag on nearly half corporate bond firms
Tags: bonds, Derivatives, high yield bonds, LBO / MBO
Bank of England warns of problems in the corporate credit market
On April - 27 - 2007
In its twice-yearly Financial Stability Review (FSR), the Bank says that while overall conditions remain favourable, the problems in the US sub-prime mortgages highlight what could go wrong here in the corporate credit market.
"The recent distress in the US sub-prime mortgage market provides a warning of how quickly credit quality can deteriorate following a period of lax credit standards," the report says. The Bank’s warning comes against a background of an increasing number of private equity purchases of big companies such as Alliance Boots bought with large amounts of borrowed money.
"Financial markets have continued to be vibrant, core institutions are highly profitable and the economic outlook is favourable. But risk-taking is increasing, including through higher leverage, lower margin requirements and relaxation of covenants," said Sir John Gieve, deputy governor, responsible for financial stability.
Tags: bonds, Distressed
Junk Bond Queen Margaret Patel leaves Pioneer
On April - 3 - 2007
The question is, where’s is the lady with the enviable track record gonna land?:
Patel, long known here as the queen of the junk-bond fund world, gave her notice last week and was out the door by Friday. Neither Pioneer nor Patel would say where she is headed. "I’m taking a little time off and then expect to join another organization," she said from her home yesterday.
Patel managed two funds for Pioneer but was best known for running the $4.8 billion Pioneer High Yield fund. Her unusual investment style and strong performance in different kinds of markets made the Pioneer fund stand out.
"Margie Patel is a great manager," says Lawrence Jones , an analyst who follows the fund for Morningstar Inc. "I was pretty disappointed. It was a big loss; there’s no question about that."
Patel, 57, joined Pioneer in 1999, when she was already running the high-yield fund. Then called Third Avenue High Yield , the fund was acquired by Pioneer shortly after it hired Patel. Her fund’s assets at that time: $8.8 million.
The queen moves on – Boston Globe
Tags: bonds, Mutual Funds, Revolving Door
Debt bubble to pop in 2008 experts say
On December - 8 - 2006
Experts at a restructuring conference think that the debt market is in a bubble which is going to burst in 2008:
Companies acquired by private equity firms typically face their first debt payments three years after the acquisition. The firms purchased during the 2005 private equity boom are, therefore, expected to struggle in 2008 after adding high levels of debt over the past three years, said Keith McGregor, a partner at accountancy firm Ernst & Young.
"Debt markets are definitely in a bubble," McGregor said during a restructuring conference. "Prices are high, firms are overleveraged and it’s in the nature of a bubble to burst."
Tags: bonds, Distressed
The first hedge fund debt sale: Citadel sells $500 million five year notes
On December - 7 - 2006
Ken Griffin hedges his bets and his reliance on funding from Wall Street investment banks: As was expected per the news from a little over a week ago, Citadel sold $500 million in five year notes today according to Bloomberg sources, making it the first hedge fund to take advantage of the debt market. The notes sold at 1.9% over Treasuries with a similar maturity and received an investment grade rating, BBB+ by Fitch and BBB by S&P. Not everyone was wowed by the the terms of the deal:
The lack of transparency in the hedge fund industry turned off some investors, including Mark Kiesel, who oversees $50 billion in corporate bonds at Pacific Investment Management Co. Hedge funds are unregistered pools of capital from wealthy individuals and institutions that allow managers to participate significantly in the gain or loss of the money invested.
“When you don’t like the business and you can’t get your hands around it, no spread is enough,” said Kiesel, an executive vice president of Newport, California-based Pimco, manager of the world’s biggest bond fund. Pimco didn’t buy Citadel’s notes, Kiesel said.
Citadel’s sale may cut Chicago-based company’s reliance on financing
Citadel Sells $500 Million in First Hedge Fund Notes – Bloomberg
Tags: bonds, Citadel, Hedge funds
The bondholders’ minefield
On December - 7 - 2006
Funny how history repeats itself: Similar to the LBO rush that occurred in the late 80’s after the ‘87 crash, the current rash of LBOs may be great for the shareholders that have been taken out at nice premiums, and for the deal sponsors who have been raking in piles of cash from fees and dividends. But as we’ve pointed out in a couple of different pieces recently, the current environment has proven to be a minefield for bondholders who have been left holding the bag with large losses owing to bonds with toothless covenants that allow for the piling on of new debt at the old debtholders’ expense. It’s even worse in this cycle though, since even the largest companies, historically thought to be protected from LBO risk because of their sheer size, are no longer invulnerable. Covenants in the largest investment grade companies are often among the weakest; faced with piles of new debt on those companies, bondholders are getting killed. Witness the large losses in the HCA bonds, to name just one example. However, bondholders are finally starting to push back, just as they did in the last big LBO cycle. From a piece in this morning’s Boston Globe:
Private-equity firms finance deals by borrowing most of the money, loading the businesses with new debt. That makes the company less creditworthy and their old bonds worth less. Sometimes, much less.
Until recently, this was a real but rare risk. Now money is pouring into private equity funds at an unprecedented pace, so leveraged buyouts are much larger and more frequent. Companies with fat and dependable cash flows, most likely to own sterling credit ratings, are the prime targets.
"It’s become a long list of companies," says mutual fund manager Margie Patel of Pioneer Investments. "What’s good news for the equity holder is bad news for the bondholder."
Investors have responded in two ways to the new and unpredictable risk of some corporate bonds. Most directly, they are demanding new covenants protecting their interests.
