Bailout

Distressed debt datapoint of the day

By Felix Salmon

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.

Full post as published by Macroprudential on December 18, 2009 (boomark / email).