• Tag Archives Bondholders
  • Stressful Year Ahead for Spanish Banks

    The ‘spillover effects.’ By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. Just how much more stress Europe’s banking system can bear will be one of the big questions of 2018. This year was already a pretty stressful year, what with two major Italian banks being put out of their misery while, another, Monte dei Paschi di Siena, was brought back from the dead. In Spain, 300,000 shareholders and subordinate bondholders mourned the passing of the country’s sixth biggest bank, Banco Popular, which was acquired by Santander for the measly price of one euro.
    Now, a whole new problem awaits. A report published by Spain’s second largest lender, BBVA, has warned about the potential impact on the sector’s profitability of new rules on provisions due to come into effect in early 2018.
    Until now, banks only had to report losses when loans began deteriorating – i.e. when the defaults began. But the introduction in January of a new accounting rule, known as IFRS 9, will force banks in Europe to provision for souring loans much sooner than at present. One direct result will be that banks will have to hold more capital on their books, and that will have a detrimental impact on their profits.

    This post was published at Wolf Street on Dec 12, 2017.

  • Broke And Desperate, Part 1: Chicago Pawns A Crown Jewel

    A new bond issue from Chicago is rated AAA. That’s great because it means the city’s finances are on the mend, right?
    Nope, just the opposite. Here’s the story:
    Bondholders fret as alchemy turns Chicago’s junk to gold
    (Bloomberg) – Chicago’s public pension debt is $36 billion and growing, it’s facing $550 million in budget deficits over the next three years and this summer the state had to bail out a school system that was flirting with insolvency.
    Yet next month, the nation’s third-largest city – whose bonds were downgraded to junk by Moody’s Investors Service two years ago – will start selling as much as $3 billion of debt that another rating company considers as safe as U. S. Treasuries.
    That’s because Chicago is selling off its right to receive sales-tax revenue from Illinois to a separate public corporation, which will issue new bonds backed by those funds, a structure called securitization. Because bondholders will be insulated from the city’s finances and have a legal claim to the sales-tax money, Fitch Ratings deems the bonds AAA.

    This post was published at DollarCollapse on NOVEMBER 13, 2017.

  • Financial Storm Clouds Gather Over Italy

    Wishful thinking may not be enough.
    The financial markets have been exceedingly calm in Italy of late. At the end of October the government was able to sell 2.5 billion of 10-year debt at auction at a yield of 1.86%, the lowest since last December – an incredible feat for a country that four months ago witnessed a major bank bailout and two bank resolutions, and that has so much public debt that it spends 70 billion a year to service it, the world’s third-highest.
    And there’s the ECB’s recent decision to slash its bond buying from roughly 60 billion a month to 30 billion as of Jan 1, 2018. Then there’s the over 432 billion of Target 2 debt the government owes the ECB, the growing likelihood of political instability as elections approach in 2018, the recent referendums for greater fiscal and political autonomy in Lombardy and Veneto and serious unresolved issues in the banking sector.
    Monte dei Paschi di Siena may still be alive as a bank, but it’s not out of the woods. Last week its stock resumed trading after ten months of being suspended from Italy’s benchmark index, the FTSE MBE. Shares opened on Wednesday at 4.10, then rose 28% to 5.26. But it didn’t stick. On Friday, shares closed at 4.58.
    It’s a far cry from the 6.49 a share the Italian government paid in August when it injected 3.85 billion into the bank to keep it alive. It spent another 1.5 billion shielding some of the bank’s junior bondholders, whose debt was converted into equity. As part of the rescue, the Tuscan bank was forced to present a plan to cut 5,500 jobs and close 600 branches until 2021, in addition to transferring 28,600 million euros in unproductive loans and divesting non-strategic assets. Investors clearly have their doubts.

    This post was published at Wolf Street on Nov 5, 2017.

  • Hunger Game: Venezuela’s Behind on Its Debt and Facing Two Huge Payments

    (Bloomberg) Ever since the price of oil collapsed in mid-2014, there’s been a broad consensus among the bond-market crowd that Venezuela was going to default. Not immediately, they said, but at some point down the road.
    Three years on, that time may have arrived. On Friday, the government-run oil giant PDVSA owes $985 million. Six days later, it’s on the hook for another $1.2 billion. Not only is that a daunting sum for a country whose foreign-currencyreserves recently dipped below $10 billion for the first time in 15 years, but it figures to be a logistical nightmare too.
    Increasingly isolated by U. S. financial sanctions that have spooked banks and other intermediaries in the bond payment chain, Venezuela has alreadyfallen behind on interest payments worth $350 million that were due earlier this month. Those payments had a grace period – a buffer of sorts that gives the country an additional 30 days to work out the technical glitches and deliver the cash. The principal portions of the payments owed over the next two weeks contain no such language. Miss the due date and bondholders can cry default. Prices on the notes due Nov. 2 acutely reflect those risks: They’re at just 92 cents on the dollar.

    This post was published at Wall Street Examiner on October 23, 2017.

  • What Junk-Rated Netflix just Said about the Bond Market

    It lives in a fantasy world.
    Netflix just completed a $1.6 billion junk-bond offering. The 10.5-year notes are rated B+ by Standard & Poor’s and B1 by Moody’s – four notches into junk. But no problem. Those notes sold on Monday at a yield of 4.875%, or 256 basis points over the equivalent US Treasury yield, according to LCD of S&P Global Market Intelligence.
    This was just the latest – and largest – issuance in a series of ever larger bond sales.
    Netflix, whose shares went from $9.94 to $192.47 in five years, is on a peculiar and accelerating treadmill: It needs to borrow ever larger amounts just to cover its ever-larger negative cash flows year after year. These negative cash flows are mostly caused by ever more spending on its proprietary streaming entertainment programming that is needed to attract ever more subscribers, who are needed to support its gigantic market capitalization of $84 billion. And that gigantic stock market capitalization is needed as a guarantee of sorts for the bondholders…. If this seems a bit circular, it’s because it is.
    You’d think a company that has been publicly traded for 15 years, offers a popular service, and produces proprietary content that people want to watch would have figured out by now how to turn its business model into something that is self-sustaining. But no.

    This post was published at Wolf Street by Wolf Richter ‘ Oct 24, 2017.

  • Moody’s: Hartford Default Likely on Yearly Deficits Seen to 2036 (Connecticut Already Has 2nd Worst Public Pension Underfunding Requiring $22,745 Person To Fix)

    As we watch the alleged Federal government shutdown by politicians who crave spending more and more of YOUR money (without cutting spending), we see the same in various states and cities like Chicago, Illinois. Now Hartford CT is in on the overspending act.
    (Bloomberg) – Moody’s says the city of Hartford is likely to default on its debt as early as November without additional concessions from Connecticut.
    Moody’s sees Hartford’s operating deficits of $60 million to $80 million through 2036
    Hartford will look to bondholders to restructure roughly $604 million in general obligation and lease debt, Moody’s says.
    Moody’s sees additional grant revenue or amount equal to PILOT payments cutting view of operating deficits by over half.

    This post was published at Wall Street Examiner by Anthony B Sanders, repost courtesy of Snake Hole Lounge. ‘ October 19, 2017.

  • This is What it Looks Like When Credit Markets Go Nuts

    Pricing of risk kicks bucket in record central-bank absurdity.
    As the days pass, the perverse effects of central bank policies on the financial markets are getting more and more amazing. This includes the record-setting nuttiness now reigning in the European bond market, compared to the mere semi-nuttiness in the US bond market.
    The 10-year yield of US Treasury Securities closed at 2.34% yesterday and at 2.33% today. This is low by historical standards. It’s barely above the rate of consumer price inflation as measured by CPI, which was 2.2% in September. This means that coupon payments barely make up for the loss of purchasing power. If inflation ticks up just a little, bondholders will be left in the hole. And a yield this low doesn’t compensate bondholders for any other risks, including duration risk, which can be significant. In other words, this is a bad deal.
    But in this strange world, it looks practically sane, compared to the Draghi-engineered negative-yield absurdity that has overtaken the Eurozone, where the average yield of euro junk bonds – the riskiest bonds out there – dropped to 2.16%.
    This chart, based on the BofA Merrill Lynch Euro High Yield Index via the St. Louis Fed, shows how the average euro junk-bond yield (red line) has plunged so far this year, on the way to what? Zero? The 10-year US Treasury yield (black line) has started rising in past weeks and, in late September rose above the euro junk bond yield for the first time ever:

    This post was published at Wolf Street on Oct 19, 2017.

  • Sears Crashes After Second Largest Shareholder Resigns From Board

    With Toys ‘R’ Us having already filed Chapter 11 bankruptcy, in a move that came as a shock to most of its bondholders, suddenly the race between Bon-Ton Stores and Sears Holdings who will file next, is entering its last lap.
    For those who may have missed it, late last week, in a scenario right out of the last days of Toys “R” Us, some of Bon-Ton Stores’s suppliers reportedly scaled back shipments and asked to be paid sooner in order to protect themselves from potential losses in case the department-store chain unexpectedly filed for bankruptcy, Bloomberg reported on Friday.
    The suppliers have insisted on getting paid with letters of credit or cash on delivery, which can be a drain on the company’s resources, said the people, who asked not to be named because the matter is private. The demands come just as the chain enters the key holiday-shopping season in the U. S. ‘We maintain constructive relationships with our vendors,’ Christine Hojnacki, a spokeswoman for the York, Pennsylvania-based company, said in a statement. ‘Our team has been working closely with all of our vendors, large and small, as we build inventory ahead of the holiday season.’

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

  • The Case For Wiping Out Puerto Rico’s Debt

    President Trump, who knows a thing or two about bankruptcy, says Puerto Rico’s public debt should be wiped out. We agree.
    The commonwealth owes bondholders somewhere on the order of $70 billion, with most of that debt tied to general-obligation bonds, revenue bonds and bonds issued by the Puerto Rico Electric Power Authority (PREPA).
    Ahead of the wide devastation wrought by Hurricanes Irma and Maria, we were of the view that the commonwealth could manage perhaps 20 to 30 percent of its general-obligation and revenue-bond debt and that PREPA could pay off perhaps 30 percent of its debt.
    Now, as the island and its economy reel from the carnage of the hurricanes, we see the only viable way forward as a zeroing-out of the bonds in question and an immediate cessation of interest payments. Puerto Rico’s badly-crippled economy must rebuild, and the only way for that to happen is for legacy governmental debt to be handled in a way that won’t impair the restoration of markets and physical development.
    This is a necessary remedy that will affect three sets of bondholders.

    This post was published at Zero Hedge on Oct 9, 2017.

  • What Is Your City’s Debt Burden?

    What is your local government’s debt burden? Or in other words, how much of your local government’s annual revenue would be fully consumed by its liabilities?
    That’s a question that J. P. Morgan took on in its recent analyst report The ARC and the Covenants 3.0, in which it considered the total debt burdens of the governments of US cities, counties, and states.
    Read Transcending Government – A Future of Competitive Governance Driven by ‘Governance Entrepreneurs’
    Here’s an excerpt from the report’s Executive Summary, in which the private bank explains its interest in the results of the analysis and what liabilities are included in each level of government’s total debt, which goes into the calculation of their ‘IPOD’ ratio, which is their estimate of the true burden of debt local governments throughout the United States:
    As managers of $70 billion in US municipal bonds across our asset management business (Q2 2017), we’re very focused on credit risk of US municipalities. Last year, we completed our tri-annual credit review of US states. While a few states have very large debts relative to their revenues, many are in decent shape. This summer, we completed a review of the largest US cities and counties. In general, US cities and counties have substantially more debt relative to their revenues than US states. While most have several years to undertake remediation measures, some very difficult choices will be required in order for them to meet all of their future obligations. And when these choices become untenable and rare municipal bankruptcies do occur, bondholders have usually received lower recoveries than pensioners.

    This post was published at FinancialSense on 10/09/2017.

  • Junk Bond Debt Covenant Quality Drops To All Time Lows

    By Mark Rzepczynski of the Disciplined Systematic Global Macro Views blog
    Corporate spreads are tight and there is little room for further reduction given the absolute level of spreads.

    The reach for yield may be at an extreme. The bond spread is the compensation given bondholders for taking on the risk of corporate debt; consequently, it should become a concern when the quality of bond covenants or protections declines with spreads. Of course, if risk is declining, this is not the case, but at this point in the credit cycle it is hard to make that argument. An inverse relationship between spreads and covenant weakness means you are getting less compensation and less protection for the same risk, all things equal.

    This post was published at Zero Hedge on Oct 7, 2017.


    GOLD: $1272.10 UP $0.10
    Silver: $16.60 DOWN 1 CENT(S)
    Closing access prices:
    Gold $1274.80
    silver: $16.61
    PREMIUM FIRST FIX: $8.24 (premiums getting larger)
    Premium of Shanghai 2nd fix/NY:$13.00 (PREMIUMS GETTING LARGER)
    LONDON FIRST GOLD FIX: 5:30 am est $not important
    LONDON SECOND GOLD FIX 10 AM: $1283.10
    For comex gold:
    TOTAL NOTICES SO FAR: 2115 FOR 211,500 OZ (6.5785 TONNES)
    For silver:
    115,000 OZ/
    Total number of notices filed so far this month: 316 for 1,695,000 oz

    This post was published at Harvey Organ Blog on October 4, 2017.

  • Hartford and America: Suffering the Consequences of Political Malfeasance

    What happens when government officials spend with virtually no restraint and they don’t have a printing press that can crank out more money?
    Hartford, Connecticut.
    Last week, both S&P Global Ratings and Moody’s Investors Service downgraded Hartford’s credit rating deeper into junk status. According to a Reuters report, the downgrade puts Hartford near the bottom of the credit scale. This means the agencies view the city as essentially in default with little prospect for a full bondholder recovery.
    According to S&P analysts, ‘A default, a distressed exchange, or redemption appears to be a virtual certainty.’
    Hartford’s budgetary performance has been weak for several years, and the management environment remains constrained due to a structurally imbalanced budget with no credible corrective plan.’
    Moody’s said there is ‘increased likelihood of default as early as November’ adding that its rating reflects its expectation that bondholders will recover just 65 to 80% of their principal investments.
    In other words, if you invested in Hartford’s future, you’re probably about to get hosed.

    This post was published at Schiffgold on OCTOBER 4, 2017.

  • Puerto Rico Bonds Crash To Record Low After Trump Says Debt May Need To Be “Wiped Out”

    Echoing President Obama’s interference in the legal bondholder process of the General Motors bankruptcy, President Trump’s comments that Puerto Rico’s debt “will be wiped out” yesterday has sparked a bloodbath in PR Muni bonds. Puerto Rico’s 8s of 2035 have plunging to a record low 35 cents on the dollar this morning from 44 yesterday, as bondholders fled hitting any bid, worried that Trump would follow through on his warning.

    This post was published at Zero Hedge on Oct 4, 2017.

  • The Fate of Toys ‘R’ Us after Bankruptcy?

    Brick & Mortar Meltdown: Toys ‘R’ Us can’t solve what’s killing it.
    Bankruptcy indicators first started swirling publicly around Toys ‘R’ Us on September 6. Unlike other retailers that have been dogged by bankruptcy rumors for years, such as Sears Holdings, Toys ‘R’ Us threw in the towel only 12 days later, when its suppliers, fearing steep losses, reacted just as the company was trying to build its inventory before the crucial holiday sales period.
    It wasn’t bondholders or banks that pulled the ripcord, but trade creditors. The US and Canadian entities filed for bankruptcy protection in order to be able to restructure their debts and stock up for the holidays with a proposed $3.1 billion in debtor-in-possession (DIP) financing.
    Yet the toy industry has seen growing sales for five years in a row, hitting $20.4 billion in 2016, up from $16 billion in 2012. It’s respectable growth of around 5% a year. But TRU is getting clobbered by its competitors, including Walmart and Target, and particularly by the relentless shift to online shopping.

    This post was published at Wolf Street on Sep 25, 2017.

  • How Long Will Toys ‘R’ Us Survive after Bankruptcy?

    Retailers rarely survive bankruptcy, second filings are common, and Toys ‘R’ Us has not solved what is killing it.
    Bankruptcy indicators first started swirling publicly around Toys ‘R’ Us on September 6. Unlike other retailers that have been dogged by bankruptcy rumors for years, such as Sears Holdings, Toys ‘R’ Us threw in the towel only 12 days later, when its suppliers, fearing steep losses, reacted just as the company was trying to build its inventory before the crucial holiday sales period.
    It wasn’t bondholders or banks that pulled the ripcord, but trade creditors. The US and Canadian entities filed for bankruptcy protection in order to be able to restructure their debts and stock up for the holidays with a proposed $3.1 billion in debtor-in-possession (DIP) financing.
    TRU’s overall sales and same-store sales have been declining, even as the toy industry has seen growing sales for five years in a row, hitting $20.4 billion in 2016, up from $16 billion in 2012. It’s respectable growth of around 5% a year. But TRU is getting clobbered by its competitors, including Walmart and Target, and particularly by the relentless shift to online shopping.

    This post was published at Wolf Street on Sep 25, 2017.

  • Natural Disasters Have Not Caused a Single Muni Default: Moody’s

    For the first time since we’ve been keeping track, two separate Category 4 hurricanes struck the mainland U. S. in the same year. It should come as no surprise, then, that the combined recovery cost of Hurricanes Harvey and Irma is expected to set a new all-time high for natural disasters. AccuWeather estimates the total economic impact to top out at a whopping $290 billion, or 1.5 percent of national GDP.
    With parts of Southeast Texas, Louisiana and Florida seeing significant damage, many fixed-income investors might be wondering about credit risk and local municipal bond issuers’ ability to pay interest on time. If school districts, hospitals, highway authorities and other issuers must pay for repairs, how can they afford to service their bondholders?
    It’s a reasonable concern, one that nearly always arises in the days following a major catastrophe. But the concern might be unwarranted, if the past is any indication.

    This post was published at GoldSeek on Thursday, 14 September 2017.

  • Offshore Drilling Giant Seadrill Files For Bankruptcy

    Seadrill Ltd., the London-based offshore driller controlled by billionaire Norwegian shipping magnate John Fredriksen, filed bankruptcy protection in the Southern District of Texas after working out a deal with most of its senior lenders to inject $1 billion of new money into the company pursuant to a pre-arranged plan of reorganization. The filing was largely expected and came just a couple of days before the company’s $843 million 5.625% Notes of 2017 came due.
    According to Bloomberg, Fredriksen spent more than 18 months trying to strike an agreement with creditors to restructure the industry’s biggest debt-load after crude’s collapse curbed demand for Seadrill’s services. Daily leases for the company’s rigs, which once commanded up to $800,000, have dropped to around $200,000 as cheap oil from U. S. shale drilling continues to flood the market.
    ‘The deal gives us a great liquidity cushion,’ allowing Seadrill to survive the ‘mother of all downturns,’Chief Executive Officer Anton Dibowitz said by phone. The new capital is ‘underpinned’ by top shareholder Hemen Holding Ltd. and more than 40 percent of bondholders support the plan along with 97 percent of Seadrill’s secured bank lenders, he said. Dibowitz expects more bondholders to sign up to the deal.
    Bondholders are currently predicting their ultimate recovery is worth about 25 cents on the dollar as of today.

    This post was published at Zero Hedge on Sep 13, 2017.

  • Here’s Hartford’s Risky Plan To Strongarm Concessions From Its Creditors

    After Hartford Mayor Luke Bronin had warned Thursday that the capital of the wealthiest state in the US could be broke in as little as two months, city officials scheduled a conference call with bondholders to begin restructuring talks, according to Bloomberg.
    As we noted earlier, Hartford’s financial troubles have been compounded by a broader crisis in the state government. But the city’s yearslong descent into insolvency has been hastened by corrupt and incompetent political leaders, fleeing middle-class residents – and now the hollowing out of the insurance industry that once provided a crucial tax buffer. Last year, insurance giant Aetna announced that it intended to move its headquarters to New York City, though it would leave thousands of employees to continue working in Hartford, the decision was still a financial – as well as a reputational – blow.
    According to Bloomberg, city officials, who’re being advised by law firm Greenberg Traurig, will try to convince creditors that restructuring is necessary to guarantee the city’s fiscal stability. Of course, to wrangle better terms from its creditors, it helps to have leverage. And in a recent column, the Hartford Courant’s Dan Haar reveals one ‘shocking’ strategy reportedly being contemplated by city officials: Asking that the state withhold aid unless the city’s creditors agree to concessions.

    This post was published at Zero Hedge on Sep 8, 2017.

  • Fearing Contagion, Russia Bails Out Bondholders in its Biggest Bank Collapse Yet

    ‘The panicky mood has been dampened down,’ as other banks are rumored to be teetering.
    True to the playbook of bank bailouts, the Central Bank of Russia (CBR) decided to bail out Bank Otkritie Financial Corporation, the largest privately owned bank in the country, and the seventh largest bank behind six state-owned banks.
    The Central Bank put in an undisclosed amount of money in return for at least a 75% stake. This is likely to be Russia’s biggest bank bailout ever, well ahead of the current record holder, the $6.7 billion bailout of the Bank of Moscow in 2011.
    Otkritie and its businesses would operate as usual, the Central Bank said. The banks obligations to creditors and bondholders, which include other Russian banks, would be honored to avoid contagion.
    The controlling shareholder of Otkritie bank is Otkritie Holding, with a 65% stake. The bank had grown by wild acquisitions, grabbing other banks, insurers, non-pension funds, and the diamond business of Russia’s second largest oil producer Lukoil. Otkritie Holding is owned by executives of Lukoil, state-owned VTB bank, Otkritie, and other companies. So clearly, this bank is too big to fail.

    This post was published at Wolf Street on Aug 30, 2017.