Commentaries

European Commission defanged by hybrid debt

September 2, 2009

Fans of the weird and wonderful world of hybrid debt will have enjoyed the European Commission’s U-turn with Belgian bank KBC.

Retail no answer for bank capital dearth

August 25, 2009

How does a bank raise capital when institutional investors are steering clear of hybrid debt? The dilemma may be particularly acute for Deutsche Bank, which is still in bad odour with some fund managers for not repaying some subordinated debt at the first opportunity this year as expected.

Calling a bottom in Spain

August 24, 2009

Is the worst over for Spanish mortgage defaults? That’s one way to interpret Santander’s offer to buy back up to 16.5 billion euros of its outstanding asset-backed debt.

Reality arrives at The Rock

August 18, 2009

The surprising thing about Northern Rock’s decision to defer coupons on 1.6 billion pounds of its subordinated debt is the timing — arguably, it’s a miracle investors were getting paid anything at all.

Cash M&A still lifeless

August 14, 2009

Bond sales are at a record, equity markets are at year-highs, private equity firms are sitting on huge cash piles — Blackstone alone has $29 billion — and banks are lending to each other again.

from Neil Unmack:

Bond investors won’t bail out private equity

August 5, 2009

Private equity and European high-yield bond investors have an awkward relationship. Investors recoiled from the market after telecom companies went bust in the dot-com crash. Issuance picked up during the recent credit boom, but PE firms raised most of their funding through private bank loans, many of which were repackaged into collateralised loan obligations (CLOs).

Stomachs of steel for U.S. debt

July 30, 2009

Bond market vigilantes — investors who punish profligate governments by pushing up their cost of borrowing — have been remarkably quiescent.

from Neil Unmack:

Accountants to the rescue

July 23, 2009

Moody's has published some interesting research on how European companies’ pension deficits have emerged from the last few months of financial mayhem, and the impact of accounting practices on calculating their current deficits.
Top of the list for investment nous comes Rolls Royce, whose pension assets gained eight percent in 2008 after the company reduced exposure to equities in 2007. Bottom of Moody’s 20-strong sample was Shell, whose pension assets tumbled 29 percent, according to the rating company's estimates. The average decline was 14 percent.
This decline means that European companies’ pension obligations are on average 93 percent funded -- more or less in line with the agency’s forecasts, and far ahead of their U.S. counterparts.
But let’s not get too jubilant just yet.
Moody’s notes that the results have been boosted by accounting rules that allow European companies to discount their pension obligations at a rate derived from high-quality corporate bond spreads—very handy given the spike in yields last year. This crops up as an actuarial gain in the pension footnote.
One European company booked a reduction in its pension deficit of between 15 and 20 percent as a result of actuarial gains, Moody’s notes, while 14 of the 20-strong sample booked reductions of 5 percent or more. (Actuarial gains, of course, aren’t limited to changes in the discount rate, Moody’s stresses). 
Nonetheless, the concern is that falling real bond yields, if not matched by rising asset prices, will cause companies' pension funding levels to fall further—forcing them to record larger deficits and stump up more cash.

Food, art, life, death, bonds

July 1, 2009

As co-chief investment officer of PIMCO, the world’s largest bond fund, Bill Gross is certainly “one of the nation’s most influential financiers,” as a recent New York Times profile noted. Not surprisingly, his monthly message to investors is widely read.

from Neil Collins:

A haircut or a headcut for GM bondholders?

June 1, 2009

Bill Zastrow owns $240,000 of General Motors bonds. He's not happy, but, as he told Reuters' Kevin Krolicki, "We were getting the Marie Antoinette haircut and now it looks like it's a few inches higher."