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High Yield Issuance Continues Torrid Pace As Levered Issuers Scramble To Catch Refi Window
There is no better representation of the ongoing irrational exuberance in capital markets than what has been happening with HY bond issuance. And the number indicates that many fixed income fund managers are staring at a lot of pain in the future: YTD there has been $100 billion issued in HY bonds, more than double the $49 billion issued in all of 2008. The biggest losers in all of this: restructuring shops who have been hiring senior bankers left and right to prepare for an onslaught of bankruptcies. Alas, with the majority of 5x+ leveraged dinosaurs extending maturities yet again compliments of "money that just has to be put to work" expect bankruptcies to be indefinitely delayed once more, never mind that the deteriorating underlying businesses generate less cashflow than ever and actual bond recoveries, when the inevitable bankruptcies finally do come, will be worse than single digits.
From Thomson Reuters:
September volume was $17.9 billion, second this year only to May,
versus $8.2 billion a year ago. For 3Q09, volume was $40.3 billion
versus only $13.7 billion in 3Q08. For the week, volume was $2.7
billion, spread over eight deals, versus $4.1 billion last week.
Initially counted as a high yield bond last week, the Realogy deal was
reclassified as a syndicated loan and included in the loan league
tables maintained by Thomson Reuters LPC.
The secondary market had a softer tone this week, as most deals were
flat or down after the break. The biggest decline in prices and
widening of spreads came Thursday, when the stock market fell hard,
Treasuries rallied sharply and there was a general movement away from
riskier assets. By the end of the week, the 10-year Treasury yield had
fallen to 3.22% (versus 3.34% at the end of last week). After falling
1.8 points Thursday, the CDX HY13 rallied slightly on Friday to close
out the week at 91.375.
Year-to-date high yield volume stands at $99.8 billion, more than double the $48.8 billion figure for all of 2008.
Flows into high yield mutual funds continued to ebb during the week
ended Sept. 30, to $122.6 million versus +$317 million the previous
week, according to AMG Data Services. The four-week moving average of
net inflows also fell, to $272 million. Year-to-date net inflows for
weekly reporting funds now stand at $17 billion.
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Is there any suspicion that this money comes someone other than investors eager to risk money on the prospect of an improving economy in the face of deteriorating fundamentals?
Could it be yet another stealthy attempt to reflate the economy? The other notable effort being the equitiy market, of course.
im hearing that oct 15 th is when the deadline is to pay the irs and everyone who cant will be bk. anyone else hearing this? all over the web this weekend that oct 15th is the day when the ship starts to roll over
i don't see why the IRS just can't extend and pretend like the banks.... it would be another subtle form of QE....
Yes, hearing that they mailed out letters Mid-Sept to everyone owing money and not perfectly on schedule to have it paid back via agreement. Gave 30 days before Lien/Levy, based on previous action.
There are a couple of interesting stories related to high yield and the private equity looters today. One in the NY Times is on the bankruptcy of Simmons, the mattress company. It has been flipped 7 times in a little over 2 decades:
http://www.nytimes.com/2009/10/05/business/economy/05simmons.html?_r=1&hp
But the load weighed down an otherwise healthy company. Today, Simmons owes $1.3 billion, compared with just $164 million in 1991, when it began to become a Wall Street version of “Flip This House.”
In many ways, what private equity firms did at Simmons, and scores of other companies like it, mimicked the subprime mortgage boom. Fueled by easy money, not only from banks but also endowments and pension funds, buyout kings like THL upended the old order on Wall Street. It was, they said, the Golden Age of private equity — nothing less than a new era of capitalism.
These private investors were able to buy companies like Simmons with borrowed money and put down relatively little of their own cash. Then, not long after, they often borrowed even more money, using the company’s assets as collateral — just like home buyers who took out home equity loans on top of their first mortgages. For the financiers, the rewards were enormous.
Twice after buying Simmons, THL borrowed more. It used $375 million of that money to pay itself a dividend, thus recouping all of the cash it put down, and then some.
A result: THL was guaranteed a profit regardless of how Simmons performed. It did not matter that the company was left owing far more than it was worth, just as many people profited from the mortgage business while many homeowners found themselves underwater.
Investors who bought that debt are getting virtually nothing in the new deal.
Yet the current clamor for high yield debt is such that buyers are lining up to provide money that will be paid out to shareholders, thereby increasing the company's financial leverage, as this WSJ story reports:
http://online.wsj.com/article/SB125470107157763085.html
Last week's sale of $425 million of bonds by aircraft-parts manufacturer TransDigm Group Inc. is one of the back-to-the-past corporate-bond deals causing concern among some analysts. More than $360 million of the proceeds will be used to pay a special cash dividend to shareholders and management of the Cleveland company.
The added debt increased TransDigm's borrowings to 4.3 times its earnings before interest and taxes, compared with 3.1 times before last week's deal. The expected dividend of $7.50 to $7.70 a share is equal to nearly all of the net income that TransDigm reported since the end of fiscal 2003, according to Moody's Investors Service.
Moody's said the dividend "illustrates the company's aggressive financial policy." Moody's gave the new debt a junk rating of B3, even though the ratings firm said TransDigm's "strong operating performance will enable the company to service the increased debt level."
russia refuses to shake hands with obama...
watch this 10 second video
http://keynews.su4k.com/forum_posts.asp?TID=33&PN=1&SID=6e35c983f67fafz7...
They did that to Bush too. Wasn't necessarily russians but at some meeting bunch of people refused to shake his hand. I think now that Obma is just showing a thoughtful veneer to the same bush crap it's game over on cooperation game.
It appears as though Obama is making introductions to Medvedev. He is not being ignored, he is introducing Medvedev to his administration.
On a related note - Gotta put that money to work!!
Mortgage Rally Brings Once-Shunned Bonds to Almost Double Lows
http://www.bloomberg.com/apps/news?pid=20601087&sid=agnCNlJPfp3A
What i don't understand is WHO is buying this shite? You can issue trash all day but who in thier right mind would buy debt so obviously headed for money heaven?
folks who *NEED* yield.... bond fund managers, even HF's that are looking for some income to boost the last quarter's results... it's not cheap relative to the economy/risks, but relative to the last decade's spreads, and to everything else out there (USTs, Agency bonds, Agency backed-MBS, sovreigns etc) it is...
in large part, these are the folks who USED to get their yield in the private-label MBS arena.... that $3.5tril market has all but disappeared.
the smart guys will get allocated and collect some coupons before they sell (or flip them immediately for a profit), and the idiots who follow the 'smart' big boys will buy them in the secondary market (at a premium to issue price) to hold in their portfolios.... and will be left holding the near-worthless paper when the inevitable reality sets in...
....a sincere THANK YOU to the creator of this website for giving me the best education ever ! I love your website. Thank you.
....a sincere THANK YOU to the creator of this website for giving me the best education ever ! I love your website. Thank you.
Another example of NOTHING HAS CHANGED. Wall Street crooks packaging crappy deals and selling them to co-conspirators that have been trusted with Other Peoples Money. It's a logical, yet perverse result of their always fluid bets in derivatives....besides their man Ben has their back and the regulators are in their pocket. They are addicts....and will break any law or moral to achieve greater wealth. I pity them.
They will never know the meaning of true wealth.