brewer12345
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Mar 6, 2003
- Messages
- 18,085
..than a $2 'ho.
I have been watching tons of investment grade and junk issuers pretty much form a mob to issue tons of new debt for refinancing and other purposes. I thought it was bad when I started seeing new bonds issued by CCC-rated companies. Now this:
"AdvancePierre Foods is said to have been in the market today with a new syndicated loan which is of the "covenant lite" variety. This debt apparently was priced at 4.75% over LIBOR with a 1.25% LIBOR floor (all in yield of 6%) that matures in 4 and 3/8 years. This $825MM issuance has little or no covenant protections for the investors buying the loan, so the management of this privately-held leveraged buyout company can do pretty much what they want as long as they make the contractually scheduled payments on this loan. The proceeds paid off existing loans, but they also funded a dividend to the owner of the company. So a B-rated issuer was able to sell close to $1Bn in loans that have almost no protections for the investors and they were allowed to pay out a chunk of the lenders' money to the equity investors. For all of this lattitude they will pay a 6% yield. This is a pretty aggressive structure, and if we see more issuance like this and possibly some spillover from the leveraged loan market to the junk bond market, it will be a very clear sign that investors should resist the temptation of yield and get out of the junk market."
Life, Investments & Everything: Short Attention Span Theater
I have been watching tons of investment grade and junk issuers pretty much form a mob to issue tons of new debt for refinancing and other purposes. I thought it was bad when I started seeing new bonds issued by CCC-rated companies. Now this:
"AdvancePierre Foods is said to have been in the market today with a new syndicated loan which is of the "covenant lite" variety. This debt apparently was priced at 4.75% over LIBOR with a 1.25% LIBOR floor (all in yield of 6%) that matures in 4 and 3/8 years. This $825MM issuance has little or no covenant protections for the investors buying the loan, so the management of this privately-held leveraged buyout company can do pretty much what they want as long as they make the contractually scheduled payments on this loan. The proceeds paid off existing loans, but they also funded a dividend to the owner of the company. So a B-rated issuer was able to sell close to $1Bn in loans that have almost no protections for the investors and they were allowed to pay out a chunk of the lenders' money to the equity investors. For all of this lattitude they will pay a 6% yield. This is a pretty aggressive structure, and if we see more issuance like this and possibly some spillover from the leveraged loan market to the junk bond market, it will be a very clear sign that investors should resist the temptation of yield and get out of the junk market."
Life, Investments & Everything: Short Attention Span Theater