Distressed debt datapoint of the day
Henny Sender reports:
Bonds trading at less than 50 cents on the dollar now account for only 1.1 per cent of the high-yield market, or $8.9bn in securities, down from 27.5 per cent, or $202bn in bonds, a year ago, according to JPMorgan data.
This isn’t a bubble, either, where bonds rise in secondary-market price but where there’s still no primary market for new issuance. To the contrary, private-equity shops and others have been quite successful of late in refinancing their leveraged loans in the high-yield market.
I’m not sure where all this demand for risky debt is coming from, given that everybody still expects a significant wave of defaults over the next couple of years: there can’t be that many fixed-income investors who are happy converting their debt to equity and taking control of a distressed company. Maybe junk bonds are the new equity: somewhere you can make a lot of money by spotting a compelling story, even if the rest of the market is moving in an unpredictable manner. Just don’t come crying to me when it all ends in tears.