• 26 Aug 2013 at 1:50 PM

Argentina Follows The Script Written By U.S. Courts

For the I-can’t-remember-how-manyeth time, a U.S court has ordered Argentina to do something it doesn’t want to do, calling the country a “uniquely recalcitrant debtor” and blasting its “intention to defy any rulings of this Court… with which they disagree.” And, right on cue, entering stage left, the Uniquely Recalcitrant Debtor, in the form of Argentine Economy Minister Hernán Lorenzino: Read more »

  • 08 May 2013 at 2:54 PM

It’s Okay That Chesapeake Forgot To Call Some Bonds

Well this isn’t great:

The story behind that – more fully described here – is that Chesapeake issued $1.3 billion of seven-year bonds in February 2012, and those bonds were freely callable from November 2012 to March 2013, and thereafter not callable (except with a T+50 makewhole) until maturity. And in March Chesapeake tried to call them, and their trustee – BoNY Mellon – said, well, no, you needed to give notice of a call a month in advance, everyone knows that, so you’re outta luck and can’t call them except at the makewhole price (~129). And Chesapeake disagreed and so they sued. The dispute turned on some ambiguous language – some places the bond documents said you need to provide notice a month before you call, other places they say that the early call works as long as you provide notice before March 2013 – but I wasn’t particularly sympathetic to Chesapeake, based mostly on market-practice-y reasons, and gave them about 25% odds of winning.

I was wrong!1 Today Chesapeake won its lawsuit and so will be redeeming those bonds at par. To be fair The Market was wrong too, as the bonds were trading at 108ish (5.25%-ish), wider than Chesapeake’s non-callable bonds but still well north of the 100 that you’re now going to get for them. Read more »

  • 30 Apr 2013 at 5:58 PM

Apple Sold Some Bonds

Well someone today did an entirely non-imaginary debt offering to fund a stock buyback so bully for them. Should we look at some things Apple’s debt deal is bigger than (most of them!) and other things its yield is smaller than (also most of them!)? I guess that’s a thing, I don’t know. It’s a big bond deal, but still, one should keep it in perspective. Apple sold more bonds than iPods, yes, but fewer bonds than iPads. This is not the category killer that iPrefs could have been.

I assume a termsheet will hit Edgar momentarily and I’ll have wasted my time and be slightly wrong but in the interim I made this list of what seems to have been on offer:1

That’s 5-10bps outside of where Microsoft priced last week. The deal seems to have been multiple times oversubscribed; presumably some buyers whose orders don’t get filled will console themselves buying Facebook shares or something. Read more »

  • 12 Mar 2013 at 2:06 PM

Chesapeake Forgot To Call Some Bonds

Chesapeake Energy has had lots of scandals over the last year or so, but now they’re embroiled in a new one that is perhaps their most damaging yet. No, I’m kidding, it’s totally trivial, but in my capital-markets-dork mind it’s kind of funny, so now I’m going to talk about it and you’re not going to listen, probably, if you know what’s good for you.

Basically: Chesapeake has some bonds that they wanted to call, and they forgot to call them, and now it’s probably but not certainly too late, and they’re suing to make sure. This is a difficulty of corporate personhood: when I do something dumb, I just get real quiet and hope no one notices, but when a company does something dumb, the particular human who did the dumb thing gets fired or yelled at or whatever, while other particular humans go around demanding a do-over.

The bonds are Chesapeake’s $1.3 billion of 6.775% notes due 2019, issued in February 2012. According to the prospectus, the bonds are:

  • Not callable from February 2012 to November 2012, then
  • callable at par from November 15, 2012 to March 15, 2013, then
  • callable at a make-whole price from March 15, 2013 until maturity on March 15, 2019.

The make-whole price is the present value of future payments discounted at T+50bps, so the call price goes sort of like this:1 Read more »

There are some financial jobs that come with a perhaps undeserved swashbuckling cachet. “Oh, you know, I do hostile takeovers,” you say, and a certain crowd will treat you like you just got back from plundering a Spanish ship-of-the-line, even though you mostly sit in a cubicle updating spreadsheets and changing the wording in press releases. Then there are other jobs. When you say “I do liability management for insurance-company bonds,” everyone instantly thinks of spreadsheets.

Still, you swashbuckle on unrecognized, taking a quiet satisfaction in your piratical ways. Everyone in this story is a pirate, and this is a bond that somebody made or lost or made and lost a lot of loot on:

Read the Bloomberg article, and/or our last discussion of this situation a month ago, for more information. The quick back story: Read more »

  • 11 Dec 2012 at 1:50 PM

Markets Ruined By Too Much, Too Little Liquidity

A cool thing about financial markets is that every trade has two sides, so everything that happens, someone can complain about. “Economic growth is too robust!,” someone probably says, when it is.

Does that help explain the difference between this CNBC article about investors who are mad that there’s too much trading in the financial markets, and this Bloomberg article about investors who are mad that there’s too little trading in the financial markets? Compare these stats:

While companies raise about $250 billion a year in equity financing through IPOs and additional equity offerings, [Vanguard founder Jack] Bogle said there’s $33 trillion worth of trading going on, “which is [bad].”

With these stats:

Average volumes of bonds changing hands each day this year represent 0.29 percent of the market’s face value, according to data compiled by Bloomberg and Trace, the Financial Industry Regulatory Authority’s bond-price reporting system. That’s down from 0.32 percent in 2011 and 0.5 in 2005. …

An average of $16.93 billion of investment-grade and high- yield bonds traded every day this year as the value of outstanding corporate bonds rose to $5.72 trillion, according to Finra and Bank of America Merrill Lynch index data. … Dollar-denominated corporate bond issuance of $1.4 trillion this year is up from $1.13 billion in 2011 and surpassed the previous record of $1.24 billion in 2009, Bloomberg data show.

So … probably not, right? Just different markets. Bond volumes are famously drying up due to impending Volcker bans on prop trading, increased agita about allocating capital to trading books at banks, etc., while stock volumes are famously zoomsploding due to high frequency trading and evil speculators who are only in the financial markets to make money, the jerks.1

But if you take the numbers in those two excerpts and sort of throw them all together you get … I dunno, what do you make of this? Read more »

There’s something interesting going on in these Wall Street Journal articles (Money & Investing and Deal Journal) today about how corporate bonds now sometimes trade inside of Treasuries. Or somethings interesting; one thing that’s going on is, like, why the day after the election? One possibility is that the message here – which the Journal is helpfully conveying from bond investors to the government – is “see? get your fiscal cliff shit together or soon you’ll be pricing your bonds outside of Google, and you don’t want that do you?”

There may be a side helping of, like, annoy modern-monetary-theory bloggers; from a certain viewpoint this graphic is a hot mess of category mistakes1:

BUT THE GOVERNMENT HAS A PRINTING PRESS oh never mind. Maybe Exxon does too, I don’t know.

But this is my favorite part: Read more »

  • 16 Aug 2012 at 3:32 PM

Let’s Spot A High Yield Bubble!

The Times and the Journal today are pretty excited by the new high yield bubble and I guess? What is the deal with high-yield yields being not as high as high-yield yields have been in the past, yield-wise? The answer may be giddiness:*

“In a yield-starved world, high-yield bonds are right now the only game in town,” said Les Levi, a managing director at the investment bank North Sea Partners. “The market is giddy.”

How giddy? 5.375% giddy, that’s how giddy:

The $700 million bond Nuance Communications sold last week looks like a textbook high yield deal, except it doesn’t have the yield. … Underwriter Barclays managed to squeeze 5.375% yield out of the fund managers who bought the eight-year deal. That’s almost half the 9.55% average of Barclays US Corporate high yield index since 2002 and is right above the 5.1% average yield of the bank’s investment grade bond index over the same time period. The average interest rate – or coupon – on new junk bonds over the past 30 years has been 11%, according to Thomson Reuters. …

But the top determinant of high yield bond performance, the default rate, is headed the other way. The trailing twelve-month default rate rose to 2.7% in July from 2% at the end of 2011, according to Standard & Poor’s. The rating agency expects defaults to hit 3.7% by this time next year, within hailing distance of the 4.5% 30-year average for speculative-grade bonds.

Because I was bored I went and modeled that Nuance deal in a stupid way. Here is my model. Read more »