The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
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Quote from makloda:
Just sharing
Its amazing how long these stocks stayed depressed. Hugh hendry suggested it could take another 20 years for them to come back, when I hear congresspeople talking about regulating the hell out of banks and greenspan saying the capital ratio for the 'new world' being around 15% that sounds like a good guess
The stock market seems to be calling the bottom based on slighly better data. The data I'm looking at says the opposite, Case Shiller is collapsing at a 33% annual rate, world trade at 40% AR, to me those are leading indicators. Credit spreads are widening, bank cds are widening. ABX showing little or no improvement
JPM is soaring, yet the puts I own are up in value, go figure
JPM is soaring, yet the puts I own are up in value, go figure
Leading indicators is a matter of time periods, of course. For example, the new liquidity cycle that has started is also a leading indicator to corporate profits. But on a much longer term period and it may supersede home prices still going down. In my view, it's all a matter of perspective. Is credit on the mend or is it still contracting?
If credit spreads dont react then I cant see this 'liquitidy' coming in the markets. If in a credit crisis the price of credit keeps going up and expectations of default are going up then that is the price telling us credit is still scarce
Its been a few years now that the credit market has lead and stocks reacted too late. Its almost as if there is an arbitrage in shorting equities everytime the credit market says things are terrible
Welll I guess we have to wait and see what kind of #'s the financials can create using the new "mark-to-maturity" rules before we get any real downside pressure on these stocks.
And who knows what these stress tests will reveal??
It is going to be interesting!
I think the reason the ABX indices are at lows is the fact that the Toxic Asset Plan is months away from being operational. And now with the accounting free-for-all it may never come to be anything of significance.
And who knows what these stress tests will reveal??
It is going to be interesting!
I think the reason the ABX indices are at lows is the fact that the Toxic Asset Plan is months away from being operational. And now with the accounting free-for-all it may never come to be anything of significance.
Debt Exchanges Are The Latest Push (F, FLIR, MGM, ABH)
April 03, 2009 | By Eric Fox
Debt exchanges are the latest rage on Wall Street as over-levered companies try to reduce debt levels and survive the recession and credit crisis. If too few bondholders accept the deal, the only alternative for many of these companies is bankruptcy.
Ford Motor (NYSE:F) made such an offer in early March, trying to cut its debt by up to $10.4 billion through buying out certain bondholders at less than face value, and by offering cash and shares as an enticement to turn in bonds. The main advantage of such a deal, of course, is that Ford would save billions of dollars in interest over the life of the bonds exchanged, and equity would cost it nothing.
Government May Be Attempting To Force Concessions
Ford is in better shape than either General Motors (NYSE:GM) or privately owned Chrysler, both of which were informed by the Obama administration that the companies' restructuring plans were not acceptable and would need to be revised before more government capital would be available. I believe that this is an attempt by the government to motivate the unions and bondholders to make more concessions.
The automotive industry is not the only one to grasp at this last-ditch effort to escape the bankruptcy code. AbitibiBowater (NYSE:ABH), a pulp and paper manufacturer, is trying to cut its debt by $2.4 billion by offering notes, common stock and warrants to existing debt holders. Unfortunately for the company, debt holders are not happy and are not rushing to accept the deal. The deadline to accept the offer has been extended five times.
FLIR Systems Offers An Exchange
FLIR Systems (Nasdaq:FLIR), which makes thermal imaging and infrared camera systems, offered holders of its 3% convertible notes $20 in cash and 90 shares of its common stock for each $1,000 in principal value of the notes held. FLIR Systems trades at around $20.50 per share. Management noted that the offer is the same as would be received if the bonds were converted. FLIR Systems said that the amount tendered equaled 52.2% of the outstanding principal of $191.4 million.
One of the problems that investors have with exchanges like these is the dilution to existing equity shareholders once new shares are issued. In the case of FLIR Systems, the company issued about 9 million shares to convertible bondholders who turned in bonds. The company's shares outstanding prior to the offer was 141.8 million.
Casino Industry Also Considering Debt Exchanges
The Casino industry, which relies on debt fairly heavily, seems to be ground zero for debt exchanges. MGM Mirage (NYSE:MGM) said last week that it is contemplating a debt exchange after it reported a large loss. Harrah's Entertainment, which is privately owned by several private equity firms, is in the midst of an exchange offer as well.
Complications
Another factor that is complicating efforts to complete these deals is the position of some ratings agencies. Fitch said recently that if an exchange offer is considered "coercive", it would be equivalent to a default by the issuer. Coercive is generally defined as an exchange where bondholders accept less than the bond's par value.
The key for a bondholder on whether to accept such a deal is deciding on two issues:
If the exchange is completed, does the company become viable and avoid bankruptcy?
Would a bondholder get a higher value by accepting the exchange or by taking a chance and forcing the company into bankruptcy, where more value may be realized?
Bondholders Are In Control
Many companies are unable to afford the debt they loaded up on when times were good and are desperately trying to delever by offering to exchange debt for a combination of stock or cash. It would seem that bondholders are in control of the fate of much of corporate America.
April 03, 2009 | By Eric Fox
Debt exchanges are the latest rage on Wall Street as over-levered companies try to reduce debt levels and survive the recession and credit crisis. If too few bondholders accept the deal, the only alternative for many of these companies is bankruptcy.
Ford Motor (NYSE:F) made such an offer in early March, trying to cut its debt by up to $10.4 billion through buying out certain bondholders at less than face value, and by offering cash and shares as an enticement to turn in bonds. The main advantage of such a deal, of course, is that Ford would save billions of dollars in interest over the life of the bonds exchanged, and equity would cost it nothing.
Government May Be Attempting To Force Concessions
Ford is in better shape than either General Motors (NYSE:GM) or privately owned Chrysler, both of which were informed by the Obama administration that the companies' restructuring plans were not acceptable and would need to be revised before more government capital would be available. I believe that this is an attempt by the government to motivate the unions and bondholders to make more concessions.
The automotive industry is not the only one to grasp at this last-ditch effort to escape the bankruptcy code. AbitibiBowater (NYSE:ABH), a pulp and paper manufacturer, is trying to cut its debt by $2.4 billion by offering notes, common stock and warrants to existing debt holders. Unfortunately for the company, debt holders are not happy and are not rushing to accept the deal. The deadline to accept the offer has been extended five times.
FLIR Systems Offers An Exchange
FLIR Systems (Nasdaq:FLIR), which makes thermal imaging and infrared camera systems, offered holders of its 3% convertible notes $20 in cash and 90 shares of its common stock for each $1,000 in principal value of the notes held. FLIR Systems trades at around $20.50 per share. Management noted that the offer is the same as would be received if the bonds were converted. FLIR Systems said that the amount tendered equaled 52.2% of the outstanding principal of $191.4 million.
One of the problems that investors have with exchanges like these is the dilution to existing equity shareholders once new shares are issued. In the case of FLIR Systems, the company issued about 9 million shares to convertible bondholders who turned in bonds. The company's shares outstanding prior to the offer was 141.8 million.
Casino Industry Also Considering Debt Exchanges
The Casino industry, which relies on debt fairly heavily, seems to be ground zero for debt exchanges. MGM Mirage (NYSE:MGM) said last week that it is contemplating a debt exchange after it reported a large loss. Harrah's Entertainment, which is privately owned by several private equity firms, is in the midst of an exchange offer as well.
Complications
Another factor that is complicating efforts to complete these deals is the position of some ratings agencies. Fitch said recently that if an exchange offer is considered "coercive", it would be equivalent to a default by the issuer. Coercive is generally defined as an exchange where bondholders accept less than the bond's par value.
The key for a bondholder on whether to accept such a deal is deciding on two issues:
If the exchange is completed, does the company become viable and avoid bankruptcy?
Would a bondholder get a higher value by accepting the exchange or by taking a chance and forcing the company into bankruptcy, where more value may be realized?
Bondholders Are In Control
Many companies are unable to afford the debt they loaded up on when times were good and are desperately trying to delever by offering to exchange debt for a combination of stock or cash. It would seem that bondholders are in control of the fate of much of corporate America.