• Tag Archives Bondholders
  • Emerging Market Debt Risk Tumbles To 10-Year Lows, But…

    A serial deadbeat (Argentina) got investors to buy 100-year bonds, Sri Lanka’s latest debt sale was oversubscribed by 10 times, tiny Belarus is poised to issue eurobonds, and even Papua New Guinea, the impoverished Pacific Island nation, is planning its overseas debut in the second half of the year.
    But, as Bloomberg reports, that’s just a small sampling of the risks emerging-market investors have started taking, even as yields remain relatively thin.
    But there’s more: defaulted notes from Mozambique are among the best performers in 2017. The Maldives, a tiny nation in the Indian Ocean, sold its first international bond earlier this month. And Ecuador, where the former president disparaged bondholders as ‘true monsters’ when he defaulted in 2008, had no trouble raising $3 billion.
    Century bonds in EM are still rare, but have become more popular as global yields have collapsed…

    This post was published at Zero Hedge on Jun 23, 2017.

  • Fear of Contagion Feeds the Italian Banking Crisis

    At first, deny, deny, deny. Then taxpayers get to bail out bondholders.
    By Don Quijones, Spain & Mexico, editor at WOLF STREET.
    Spain’s Banco Popular had the dubious honor of being the first financial institution to be resolved under the EU’s Bank Recovery and Resolution Directive, passed in January 2016. As a result, shareholders and subordinate bondholders were ‘bailed in’ before the bank was sold to Santander for the princely sum of one euro.
    At first the operation was proclaimed a roaring success. As European banking crises go, this was an orderly one, reported The Economist. Taxpayers were not left on the hook, as long as you ignore the 5 billion of deferred tax credits Santander obtained from the operation. Depositors and senior bondholders were spared any of the fallout.
    But it may not last for long, for the chances of a similar approach being adopted to Italy’s banking crisis appear to be razor slim. The ECB has already awarded Italy’s Monte dei Paschi di Siena (MPS) a last-minute reprieve, on the grounds that while it did not pass certain parts of the ECB’s last stress test, the bank is perfectly solvent, albeit with serious liquidity problems.

    This post was published at Wolf Street by Don Quijones ‘ Jun 16, 2017.

  • Illinois Bond Spreads Explode As Market Pukes On Latest Batch Of Bad News

    On June 1, first S&P the Moody’s almost concurrently downgraded Illinois to the lowest non-Junk rating, BB+/Baa3 respectively, with both rating agencies warning that the ongoing legislative gridlock and budget crisis need to be resolved, or else Illinois will be the first ever US state downgraded to junk status.
    S&P analyst Gabriel Petek explicitly warned that “the unrelenting political brinkmanship now poses a threat to the timely payment of the state’s core priority payments” and warned about Illinois’ inability to pass a budget for the past two years amid a clash between the Democrat-run legislature and Republican Governor Bruce Rauner. As we have documented previously, the ongoing confrontation has left the fifth most-populous US state with a record $14.5 billion of unpaid bills, ravaged entities like universities and social service providers that rely on state aid and undermined Illinois’s standing in the bond market, where investors have demanded higher premiums for the risk of owning its debt.
    Bypassing its traditional 90-day review, a terse S&P also warned that Illinois will likely be downgraded around July 1, when the new fiscal year begins if leaders haven’t agreed on a budget that starts addressing the state’s chronic deficits.
    Unfortunately for Illinois, and its bondholders, the downgrade – and the subsequent imminent “junking” – was just the tip of the iceberg.

    This post was published at Zero Hedge on Jun 12, 2017.

  • Italian Bond Yields Plunge To 5-Month Lows After Anti-EU 5-Star Party Flops In Local Elections

    Bad news for Beppe Grillo (and his anti-EU 5-Star Movement) is good news for Italian bondholders. 10Y BTP yields tumbled 9bps this morning to 2.00% – the lowest since January – after the comedian suffered heavy setbacks in local elections on Sunday, dimming the party’s prospects of leading the national government after parliamentary elections next year.
    As Bloomberg reports, Five Star, led by former comedian Beppe Grillo, failed to make it to the second round of voting in Genoa, Palermo, Parma and Verona, according to projections.

    This post was published at Zero Hedge on Jun 12, 2017.

  • Is Another Spanish Bank about to Bite the Dust?

    Stockholders and junior bondholders fear a ‘bail-in.’
    After its most tumultuous week since the bailout days of 2012, Spain’s banking system is gripped by a climate of fear, uncertainty and distrust. Rather than allaying investor nerves, the shotgun bail-in and sale of Banco Popular to Santander on Tuesday has merely intensified them. For the first time since the Global Financial Crisis, shareholders and subordinate bondholders of a failing Spanish bank were not bailed out by taxpayers; they took risks in order to make a buck, and they bore the consequences. That’s how it should be. But bank investors don’t like not getting bailed out.
    Now they’re worrying it could happen again. As Popular’s final days showed, once confidence and trust in a bank vanishes, it’s almost impossible to restore them. The fear has now spread to Spain’s eighth largest lender, Liberbank, a mini-Bankia that was spawned in 2011 from the forced marriage of three failed cajas (savings banks), Cajastur, Caja de Extremadura and Caja Cantabria.

    This post was published at Wolf Street by Don Quijones ‘ Jun 10, 2017.


    GOLD: $1290.10 down $4.30
    Silver: $17.58 down 9 cent(s)
    Closing access prices:
    Gold $1294.30
    silver: $17.68
    Premium of Shanghai 2nd fix/NY:$7.13
    LONDON FIRST GOLD FIX: 5:30 am est $1292.79
    LONDON SECOND GOLD FIX 10 AM: $1291.00
    For comex gold:
    TOTAL NOTICES SO FAR: 2048 FOR 204800 OZ (6.3701 TONNES)
    For silver:
    For silver: JUNE
    Total number of notices filed so far this month: 490 for 3,450,000 oz

    This post was published at Harvey Organ Blog on June 7, 2017.

  • Clothing Retailer Rue21 Files For Bankruptcy, Many More On Deck

    This time Fitch was right. One month ago the rating agency listed 8 retail names that were most likely to file for bankruptcy next, just over a month later 1 out of the 8 was down, when teen clothing retailer Rue21 filed a prepackaged bankruptcy on Monday night in Pennsylvania bankruptcy court.
    In its bankruptcy petition, the company which retained Kirkland & Ellis as legal advisor, Rothschild as financial advisor, and Berkeley Research as its restructuring advisor, listed both assets and liabilities in the range of $1 to $10 billion.
    The restructuring process, during which the company will operate as normal, will lead to company’s “transformation into a more focused and highly performing retailer” the company announced in a press release, and added that as part of its restructuring process, it had “entered into a Restructuring Support Agreement (RSA) with certain of its stakeholders that confirms the support of the Debtors’ key constituents for the Debtors’ restructuring process and contemplates, among other things, an emergence from chapter 11 proceedings in the fall of 2017 with a significantly deleveraged balance sheet. In particular, lenders holding 96.8% of the Company’s secured term loan, bondholders representing 60.2% of the Company’s issued and outstanding unsecured notes, and the Company’s majority shareholder each executed the Restructuring Support Agreement.”

    This post was published at Zero Hedge on May 16, 2017.

  • Puerto Rico Bankruptcy a Flashing Warning Sign for the US

    Puerto Rico officially plunged into bankruptcy this week. Years of accumulating debt and misguided government policies finally reached their inevitable end.
    The bankruptcy means more pain for the people of Puerto Rico, as well as bondholders who have virtually no hope of ever getting their money back. But beyond that, it serves as a giant, flashing warning sign, because the truth is, the financial condition of the the US isn’t fundamentally different than that of her island territory.
    Puerto Rico has racked up some $123 billion in debt, including about $74 billion in bond debt and $49 billion in unfunded pension obligations. According to the court filing, the US territory is ‘unable to provide its citizens effective services.’
    Puerto Rico has been creeping toward this climax for nearly a year. Last summer, Congress sent a bill to President Obama’s desk crafted to help the commonwealth work its way out of its debt crisis. The bill didn’t allocate any federal funds to bail out Puerto Rico, but it did set the stage to allow the island’s government to pay back debtors at less than 100%. For all practical purposes, it created a bankruptcy process for Puerto Rico, even though the word ‘bankruptcy’ wasn’t in the bill’s language.
    And here we are.

    This post was published at Schiffgold on MAY 5, 2017.

  • Puerto Rico Triggers Largest Ever US Muni Bankruptcy Process

    ‘We’re going to protect our people.’ Hedge funds reel.
    Puerto Rico’s Governor Ricardo Rossell took the momentous step on Wednesday to trigger the largest municipal bankruptcy-type process in the US, four times larger than the prior record, Detroit’s bankruptcy.
    Puerto Rico’s population has declined by about 10% since 2004 to 3.4 million. Its economy has declined by as much since 2005. Unemployment is at 14%. Public deficits have ballooned. Puerto Rico and over a dozen agencies, after years of reckless spending amid an aiding and abetting bond market, piled up over $70 billion in debt. That this was a mega problem became official two years ago; bonds crashed, and bond insurers got clobbered.
    As multiple defaults have rippled through Puerto Rico’s debt since then, hedge funds jumped into the fray and snapped up the beaten-down bonds. They figured since US states cannot file for bankruptcy the US territory couldn’t either, and that much of the debt would have to be repaid, no matter what the cost to Puerto Rico and its people.
    This calculus took a serious hit today.
    ‘We’re going to protect our people,’ Gov. Rossell announced at the press conference in San Juan, after holders of defaulted bonds had filed a slew of lawsuits. He said one of the lawsuits claimed that bondholders should get all revenues generated by Puerto Rico’s Treasury Department. ‘I’m not going to allow that to happen,’ he said.

    This post was published at Wolf Street on May 3, 2017.

  • Puerto Rico Files For Bankruptcy Protection In Largest Ever US Municipal Debt Restructuring

    * * *
    As per our report last night that following the expiration of the litigation freeze, Puerto Rico’s creditors had filed a barrage of lawsuits against the insolvent Commonwealth a bankruptcy was imminent, moments ago Puerto Rico’s governor announced the commonwealth will request bankruptcy protection of a portion of the island’s $70 billion in debt, setting up a showdown with Wall Street firms owed billions of dollars, in what will be the largest-ever U. S. municipal debt restructuring and further complicating the U. S. territory’s efforts to pull itself out of a financial crisis.
    The Puerto Rico restructuring would be far larger than Detroit’s record-setting bankruptcy, with little to no details how long a court proceeding would last or what cuts would are imposed on bondholders. The island’s financial recovery plan covers less than a quarter of the debt payments due over the next decade.
    Cited by AP, Gov. Ricardo Rossello said Wednesday that a federal control board overseeing the island’s finances has agreed with his request to put the debts before a court. He told reporters that he has requested that the U. S. territory’s federal financial oversight board commence a Title III proceeding under last year’s Puerto Rico rescue law known as PROMESA. Title III is an in-court debt restructuring process similar to U. S. Bankruptcy.

    This post was published at Zero Hedge on May 3, 2017.

  • Puerto Rico Takes First Steps Toward Bankruptcy-ish Filing

    After what has been the slowest of slow-motion train wrecks, Puerto Rico’s federal overseers have finally taken the inevitable first step toward considering the use of bankruptcy-ish proceedings, known as Title III, to allow the island to escape it’s $70 billion debt burden.
    Last year Puerto Rico was granted a 1-year temporary stay, courtesy of the so-called Promesa Act passed by Congress, that allowed protection from creditor proceedings in order to allow the debt-burdened island to negotiate a consensual agreement with bondholders. That said, the stay expires on Monday and the government has struggled to make headway in negotiations with creditors.
    With $70 billion of debt outstanding, Puerto Rico’s debt restructuring will be the largest ever for the $3.8 trillion municipal-bond market and is also expected to be among the most complicated as well with the commonwealth’s debt issued by more than a dozen agencies and backed by sometimes competing repayment pledges.
    As Bloomberg notes, the board also took steps to wind down the island’s government development bank which was used to finance multiple public projects but also defaulted on debt obligations.
    Separately, the board approved winding down Puerto Rico’s government development bank, which financed public works on the island until it defaulted during the crisis, and increasing water rates as part of a plan to steady the Puerto Rico Aqueduct and Sewer Authority. Details of those fiscal proposals haven’t yet been released.

    This post was published at Zero Hedge on Apr 28, 2017.

  • Payless ShoeSource bankruptcy is the latest blow for retail bondholders

    Payless ShoeSource’s bankruptcy filing has propelled Fitch Ratings’ U.S. retail default rate higher and kept the sector on track for up to $6 billion of defaults this year in the latest blow to retail bondholders.
    The rating agency’s trailing 12-month loan default rate for the retail sector has climbed to 1% in April from 0% in March and 0.5% at the end of February, according to the rating agency.
    Fitch is expecting the rate to spike to 9% by year-end as retailers continue to struggle with slowing traffic, shrinking margins caused by steep discounting and the competition from juggernaut Amazon.com. Consumer behavior is also changing with experiences and services more in demand than ‘stuff’.
    ‘Retailers have also suffered from the ebb and flow of brand popularity,’ Fitch said in a report. ‘Negative comparable-store sales and fixed-cost deleverage have led to negative cash flow, tight liquidity and unsustainable capital structures.’
    Payless was one of nine retailers on Fitch’s ‘Loans of Concern’ list, which comprises issuers with a significant risk of defaulting on their debt in the next 12 months. The other eight with combined loan debt of nearly $6 billion are Sears Holding Corp. with about $2.5 billion of debt, 99 Cents Only Stores LLC, Charming Charlie LLC, Gymboree Corp., Nine West Holdings Inc.; NYDJ Apparel LLC; rue21, Inc.; and True Religion Apparel Inc.

    This post was published at Market Watch

  • Europe’s Addiction to Bailing Out Banks

    Like repentant smokers, Europe’s politicians have promised to quit bailing out banks. They’re finding the habit hard to break.
    The Italian government wants to rescue three banks which are struggling under the weight of non-performing loans. The trade-offs, as always, are complicated: financial stability now against financial stability later; shielding taxpayers from the costs of a rescue against protecting small investors from heavy losses. Yet the right balance can’t mean saving every struggling bank every time.
    Last December, Monte dei Paschi di Siena, Italy’s fourth largest bank by assets, applied for an injection of public money — a so-called precautionary recapitalization — and the European Central Bank and the European Commission are examining its request. Two smaller regional lenders, Veneto Banca and Banca Popolare di Vicenza, have followed suit, as a first step towards a possible merger.
    Note that Italy is playing by the rules. The E.U.’s directive governing bank failures allows governments to inject fresh capital into a bank so long as it is solvent under normal circumstances and support is needed to prevent wider economic and financial disturbances. Precautionary recapitalization requires junior bondholders to face losses but, unlike a full-blown resolution, spares investors holding senior debt.

    This post was published at bloomberg

  • Kashkari Slams Dimon: “If Demand For Loans Is High, Why Are You Buying Back Your Stock?”

    While Jamie Dimon made headlines with the warning that “something is wrong“ with America, to which he dedicated a substantial portion of his latest annual letter to shareholders, a less discussed declaration by the JPM CEO was that the too-big-to-fail problem, one which clearly impacts his own bank, JP Morgan, has been solved. It was this that Neel Kashkari took offense with, and in a post on Medium, today the Minneapolis Fed president who has long waged a crusade to warn Americans that US banks remain very risky, he said that Dimon’s claims about the too-big-to-fail banking problem being solved and banks being over-capitalized are ‘demonstrably false.” To wit:
    At 46 pages, Mr. Dimon’s letter includes a lot of interesting commentary. In this essay, I am going to respond to two of his main points because I strongly disagree with them. First, Mr. Dimon asserts that ‘essentially, Too Big to Fail has been solved? – ?taxpayers will not pay if a bank fails.’ Second, Mr. Dimon asserts that ‘it is clear that the banks have too much capital.’ Both of these assertions are demonstrably false.
    Addressing the first part of Dimon’s argument, the “solution” of the too big to fail problem, Kashkari says that ‘Mr. Dimon repeatedly points to various regulatory schemes that all have the same unrealistic feature: In a crisis, bondholders will take losses rather than taxpayers. It sounds like an ideal solution. The problem is that it almost never actually works in real life.”

    This post was published at Zero Hedge on Apr 6, 2017.

  • Rising Inflation, Four Rate Hikes, Financial Repression on Menu in 2017: Fed Heads

    Bondholders, savers, consumers to be put through inflation wringer. Inflation will rise above target, and that’s OK, the Fed heads who’ve been talking since last week’s meeting said. The Fed will hike rates, maybe faster than expected, but they won’t catch up with inflation, keeping the Fed purposefully behind the curve, and inflation will overshoot, and real interest rates will be deeply negative, whether you like it or not. That’s the Fed’s message emerging since the last meeting.
    Today, Philadelphia Fed President Patrick Harker and Chicago Fed President Charles Evans echoed Fed Chair Janet Yellen who’d suggested on Wednesday that the Fed could try to push inflation above the 2% ‘target.’
    But the Fed’s measure of inflation is the Personal Consumption Expenditure index (PCE index), which is significantly below the Consumer Price Index (CPI) which already jumped 2.74% in February, year-over-year.
    Harker and Evans are the first Fed heads to talk since the Fed’s policy-setting committee (FOMC) last week raised the target for the federal funds rate a quarter point to a range of 0.75% to 1.0%.

    This post was published at Wolf Street on Mar 20, 2017.

  • Inflation Hits Consumers, Mortgage Rates Take Off, ‘Financial Repression’ for Bondholders and Savers

    The Fed is way behind the curve, but at least it now sees the curve.
    Retail sales in February were lousy, and even lousier after inflation, though it was reportedly the warmest February in 100 years, without a big winter storm keeping the all-important consumers cooped up at home instead of shopping.
    Total retail sales, including online and food services, edged up 0.1% to $474 billion in February, from January, the slowest increase in 6 months, the Commerce Department reported today. This came after an upwardly revised 0.8% jump in January. General merchandise sales and auto sales showed negative ‘growth.’
    These numbers are adjusted for seasonal and calendar factors, but not for inflation. We’ll get to that in a moment.
    On a year-over-year basis, not seasonally adjusted, total retail sales in February rose by $9.5 billion, or 2.2%. Gasoline sales alone soared by $7.2 billion, or 22%, on a juicy 30.7% price increase (more in a moment). And sales at non-store retailers jumped by $3.4 billion, or 8%.

    This post was published at Wolf Street on Mar 15, 2017.

  • Puerto Rican Bonds In Midst of Biggest 3-Day Rout Since April 2016 (PR Has Yet Another Rescue Plan!)

    States like California and Illinois are suffering from ‘pension paralysis’ while Puerto Rico, an unincorporated U. S. territory, is suffering from declining population and failure to reduce government spending accordingly.
    (Bloomberg) Puerto Rico bonds are in the midst of the biggest three-day rout since April 2016, when island officials advanced a moratorium bill that paved the way for the first default on its general-obligation debt, according to data compiled by Bloomberg. The selloff was triggered by the federal oversight board’s approval of a fiscal recovery plan Monday that covers less than a quarter of the debt payments due from 2018 through 2026. That leaves bondholders facing steeper losses than they did under the governor’s previous proposal.

    This post was published at Wall Street Examiner on March 15, 2017.

  • Obama Has Tied Trump’s Hands

    America is going broke. That’s not an opinion or scare tactic – it’s a fact based on simple arithmetic. President Trump could be forced to face this fact as early as March 15, the date the latest U. S. debt ceiling suspension ends.
    Government debt is growing faster than the economy. If you extend that trend, and that’s exactly what official government projections do, you reach a point where higher taxes cannot cover interest expense, investors lose confidence in the bond market, and a death spiral of higher deficits, higher interest rates, and still higher deficits spins totally out of control.
    This does not mean the end of America, let alone the end of the world. There are several ways out of the debt death spiral. It’s just that none of the ways out are easy, and all of them will cause massive losses to unprepared investors.
    The ways to escape the debt dilemma are default, inflation, asset sales (‘What do you bid for Yellowstone National Park?’), an IMF bailout, or some combination of these.
    Default imposes immediate losses on government bondholders, and mark-to-market losses on other bondholders as interest rates spike to account for increased risks. Even the possibility of default can push world markets into a tailspin or result in a credit downgrade for the United States, which happened in 2011 during that debt ceiling crisis.

    This post was published at Wall Street Examiner on February 27, 2017.

  • Whatever Happened to Inflation after All This Money Printing? It Has Arrived!

    Workers, bondholders, savers get sacked. So what would Yellen do?
    Consumer prices surged 0.6% in January from December, double the consensus forecast of a 0.3% rise. The sharpest monthly increase since February 2013, according to the Bureau of Labor Statistics.
    Energy prices jumped 4% month over month, including gasoline which jumped 7.8%. Food prices edged up 0.1%. Within this group, ‘food at home’ was unchanged, but prices for ‘food away from home’ – restaurants, taco trucks, and the like – rose 0.4%. In just one month, the prices of apparel rose 1.4%, of new vehicles 0.9%, of auto insurance 0.8%, of airline fares 2.0%. Shelter rose ‘only’ 0.2%, as the national numbers are now feeling the downward pressure on rents in some of the most expensive rental markets in the US.
    This chart shows just how sharp that jump in monthly price increases is, compared to recent years:

    This post was published at Wolf Street by Wolf Richter ‘ Feb 15, 2017.

  • What Will Prick the ‘Leveraged Share Buyback’ Craze?

    Fitch Gets Nervous.
    There may be a day when we look back at the current craze of ‘leveraged share buybacks’ – as Fitch Ratings calls these creatures of financial engineering – the way we now look back at the craze of leveraged buyouts (LBO) just before it all came apart during the Financial Crisis.
    If a company with a torrent of free cash flow uses some of this cash to invest and expand, and then uses some of the remaining cash to pay dividends and repurchase its own shares, few people would quibble with it.
    The problem for bondholders, and stockholders ultimately, arises when a company doesn’t generate enough cash to pay for its investments, dividends, and share buybacks, and ends up borrowing to fund share buybacks, thus increasing its debt burden while hollowing out its equity capital.
    Instead of investing this borrowed money to expand and create more business whose cash flow would help service that debt in the future, companies blow this money on reducing the number of shares outstanding, or at least watering down the impact of executive stock compensation plans. Nothing good ever comes of these ‘leveraged share buybacks,’ other than making per-share metrics look better.

    This post was published at Wolf Street by Wolf Richter ‘ Jan 20, 2017.