Bill Blain: How To Catch Rabies In The Junk Bond Market

Jon Alternative Media, Blogosphere, Economy

From Bill Blain of Mint Partners
Blain’s Morning Porridge – How to catch rabies in the Junk Bond Market
I’m sure everyone has been following the Toy R Us meltdown in the bond market. Alongside chapter 11 bankruptcy, its bonds have crashed from 96 to 18% through the month. Have we seen this before? Of course you have. Happens all the time. But, Blain’s Market Mantra No 3 reminds us: ‘Markets have no Memory. Buyers have even less.’
There are a number of things that worry me.
First is the market doesn’t seem to think Toy R Us is symptomatic of wider problems across the whole hi-yield and LBO sector. According to some I’ve spoken to, Toys R Us is one of few and even the ‘only’ company caught in a debt trap – oh no it isn’t! Profit of about $500mm per annum covering debt service costs of, say, about $500 per annum. FFS! As the FT comments: the capital structure is ‘extremely complicated’ leading to doubts on what is and isn’t senior or subordinated to what. It’s what we call messy.

This post was published at Zero Hedge on Sep 22, 2017.