Junk Bond Covenants Less Strigend Than Their Previous Junk Deals.....

Let´s be generous and call this kind of datapoint "frothy"...... ;-) Make sure you take a closer look at the stunning example provided in the update at the end of the post........

Höflich formuliert dürften Daten wie diese als "überschäument" durchgehen.... ;-) Verweise in diesem Zusammenhang ausdrücklich auf das Beispile das ich am Ende des Postings im Update verewigt habe.....

Bond Markets Get Riskier WSJ

One of the worrisome developments is occurring in the junk-bond market, where companies are taking advantage of strong demand to sell bonds that have fewer protections for investors than similar bonds sold by the companies in years past.

Some have watered down covenants, which are supposed to protect investors if a company is sold and prevent companies from loading on too much other debt or paying out their cash, which would cause a drop in value of the bonds or make it less likely the bonds they hold would get paid off.

Fifty-seven percent of junk-bond issuers had less-stringent covenants than their previous junk deals, according to an analysis for The Wall Street Journal by Covenant Review which analyzed 58 junk bonds issued in 2010 by companies that previously had issued debt. Just one deal had stronger covenants for investors. Some 41% of the deals had the same covenants.

"It reflects a weakening in covenant protections even below those existing at the peak of the market, in 2006 and 2007," Alexander Dill said in a May report from Moody's.

Junk bond prices hit pre-crisis levels FT

Strong investor demand for junk bonds has pushed the average price on such corporate debt to its highest level since June 2007, when companies could borrow with ease at the height of the credit boom.

The Bank of America Merrill Lynch index used by many investors to track the junk bond market – bonds sold by companies with credit ratings below investment grade – rose last week above 100 for the first time since the start of the credit crunch.

Dealogic, the data provider, said junk bonds sold to US investors so far in 2010 reached $168bn (€129bn) last week. This is more than was marketed in the whole of 2009, when the $164bn total set a record.

Mr Fridson said the average spread was 625 basis points over US Treasuries, still far above the level of June 2007, when spreads reached lows of close to 250bp.

In general i agree with the following statement and especially the headline "desperately seeking income" .... But signs of some kind of "serious excess" are clearly growing on a daily basis.....

Trotz allem kann man zumindest den Run in Sachen Unternehmesanleihen mehr als nachvollziehen.... Denke besonders die Überschrift "Einkommen verzweifelt gesucht" trifft den Nagel auf den Kopf..... Die Warnhinweise für eine gewisse "Sorglosigkeit" wachsen tagtäglich.....

Desperately seeking income FT Alphaville

...because corporate credit represents an attractive middle ground between equities and government bonds for income hungry investors

One can, of course, question the wisdom of piling into junk but given the paucity of alternatives it is understandable.

Things could really be getting "interesting" if the composition shifts away from the "refinancing" aka "extend & pretend" part..... I´m also sceptical that the markets have finally realised that this is "Not Your Father´s Recovery" & the deleveraging cycle is still in the first inning ( see Clevelend Fed "One Measure Of Corporate Leverage Recently Reached A New Historical High" ) .....

Denke das spätetstens wenn eine Verschiebung weg vom Refinanzierungs bzw "Extend & Pretend" Segment zu beobachten ist, die ganze Angelegenheit recht schnell mehr als "ungemütlich" zu werden droht....Bin mir zudem ziemlich sicher das der Markt noch immer nicht realisiert hat das die bisherige Erholung historisch gesehen nicht gerade "eindrucksvoll ausgefallen ist und das entgegen der täglichen Meldungen slebst bei den Firmen die "Entschuldungsphase" noch nicht wirklich aus dem Startblock gekommen ist ( siehe Clevelend Fed "One Measure Of Corporate Leverage Recently Reached A New Historical High" )....

Junk windfall Moody´s via FT Alphaville

Wouldn´t surprise me if the topic I Want My Buyback Back.... will be again on the agenda within 12-24 months....

Würde mich nicht wundern wenn das Thema I Want My Buyback Back.... binnen absehbarer Zeit erneut zu zweifelhaften Ruhm kommen wird.....

UPDATE:

NYT DealBook

THIS summer, executives from the New York-based private equity firm SK Capital traveled to Houston to celebrate the first anniversary of their acquisition of a nylon manufacturing business. Soon they will have a bigger reason to uncork the Champagne.

The nylon manufacturer has announced plans to issue about $1 billion in debt, of which $922 million will be used to pay a dividend to SK. For SK, which paid $50 million in cash for the business, that is an astonishing almost 18-fold return in a little more than a year.

Another Private Equity Deal That Went Bust Within 24 Months

Commercial Real Estate (CRE) & Private Equity...... When ever you hear this combination during the next few years it will be almost to 100 percent in connection with disastrous deals...... No surprise that Blackstone & Fortress are involved once again....... :-) The enitire CRE complex will be the next very very big headache for the balance sheets from banks...... It´s a safe bet that we will hear similar stories also from the LBO front on a regularly basis ( see Tribune Co. Could Be Flirting With Bankruptcy NYT) ......

Wann immer in den nächsten Monaten die Begriffe Commercial Real Estate & Private Equity im Zusammenhang auftauchen kann man sicher sein das es sich fast zu 100% um das implodieren von Mrdschweren Deals handelt...... Sicher auch kein Zufall das die Namen Blackstone und Fortress in schöner Regelmäßigkeit auftauchen..... Der gesamte Bereich der gewerblichen Immobilien wird noch für extrem große Kopfschmerzen bei den Bänkern und entsprechend große Löcher in den Bilanzen der Banken sorgen...... Wir werden uns an ähnliche Schlagzeilen vor allem auch im Zusammenhang mit den berühmt berüchtigen LBO´s von "Pirate " Equity sowie fremdfinanzierten Übernahmen im allgemeinen ( z.B. CONTI/SCHAEFFER..... ) gewöhnen müssen..... UPDATE: Erster großer Autozulieferer meldet Insolvenz an Manager Magazin

WSJ Extended Stay Could Transfer Chain to Lenders
Extended Stay Hotels Inc. is in early talks that could result in turning the hotel chain over to its lenders, a sign of the deep trouble awaiting the commercial real-estate business.

Extended Stay's difficulties signal a new phase of distress in commercial real estate, because they arise directly from the weakening economy. Until now, problems have mostly involved developers unable to obtain refinancing for otherwise healthy operations.

Lightstone Group LLC, Lakewood, N.J., bought Extended Stay from Blackstone Group LP for $8 billion in April 2007. The deal was highly leveraged, hastening Extended Stay's troubles. The chain has no major debt expirations due soon

But Extended Stay's cash flow is crashing, as business activity across the country contracts. That is putting fewer people in its 684 U.S. and Canadian hotels, used by corporate travelers on long assignments. Extended Stay has 13,000 employees. It is too soon to say if a takeover by lenders would result in layoffs or hotel closings, according to people familiar with the matter.

As conditions deteriorate, Extended Stay has been forced into discussions with its lenders, and people involved in the talks say a transfer of ownership could come within a month or two. Extended Stay has recently hired Lazard Ltd. as financial adviser and New York law firm Weil Gotshal & Manges as bankruptcy counsel......

During the real-estate lending boom, Wall Street originated $600 billion of commercial mortgage-backed securities. The default rate on commercial mortgage debt has remained near historic lows, even while residential-related debt suffered a severe downturn.

But that is now beginning to change, sending new shock waves into much-battered banks, private-equity funds and other financial institutions that participate in the $1 trillion commercial real-estate debt market. Hotel landlords typically are the first to feel the pain in a downturn because hotels have the shortest leases in real estate -- one night at a time.

bigger/größer Thanks to Calculated Risk

> I just cannot wait for this deal Hilton's $20 Billion Sale to Blackstone Is Completed to blow up........

> Ich denke es wird nicht mehr lange dauern und der absolute Königsdeal unter den Hotelbuyouts ( Hilton's $20 Billion Sale to Blackstone Is Completed ) dürfte in ähnliches Fahrwasser geraten.....

( OKTOBER 2007 ) The sale, for $26 billion including debt, is a record for the hotel industry. New York-based Blackstone, which already owns the La Quinta lodging chain, joins Apollo Management LP and TPG Inc. in targeting hotel companies for their cash flow and real estate.

An Extended Stay failure reveals how a commercial real-estate downturn could ripple through the financial system.

When Lightstone Group and preferred equity partner Arbor Realty Trust bought Extended Stay from private-equity firm Blackstone Group in 2007, it borrowed more than $7.4 billion. Wachovia Corp., Bank of America Corp., Merrill Lynch & Co. and Fortress Investment Group put in $3.1 billion in so-called mezzanine financing, which isn't as highly secured as other types of debt. People involved in the transaction say an analysis of the company's value shows that much or all of the mezzanine debt could be wiped out in any renegotiated deal.

Bondholders have hired Houlihan Lokey Howard & Zukin for restructuring talks.

Extended Stay is still meeting its debt service, but people familiar with the matter say it could default within the next 60 days if the economic downturn continues as expected. Revenue per available room, or RevPar, a common hotel-industry measure, will be down more than 10% this year at Extended Stay, according to someone familiar with the matter. Much of that decline has come in the last two months.

But it was the Extended Stay deal that was Mr. Lichtenstein's biggest. Extended Stay has operations in 44 states and Canada. It was also among his riskiest deals, as

Lightstone, with help from Arbor Realty, arranged to put down just $600 million of equity, or 8% of the total price. (Blackstone, which made about $3 billion on the sale, kept an equity interest.)

Mr. Lichtenstein saw increasing demand from business travelers who needed hotel accommodations for weeks or even months at a time. He also believed he could unlock value at Extended Stay by taking advantage of the chain's size and paying more attention to management.

A couple of months after the deal closed, Mr. Lichtenstein acknowledged the easy money that helped him complete the deal had disappeared. "We were one of the last deals in," he said.

Troubles also have surfaced at Lightstone's Prime Retail division, which owns roughly 30 malls and shopping centers in the U.S. and Puerto Rico. Lightstone has sought to turn over at least six of its malls to lenders after falling behind on debt payments.

UPDATE via NYT:

Similar screenplays/attributes can be attached to almost every other deal from "pirate" equity since 2005....

Ähnlichen Drehbüchern dürften fast alle Übernahmen von "Pirate" Equity seit 2005 früher oder soäter folgen......

In a report by the ratings agency Standard & Poor’s, 86 companies weren’t meeting their debt obligations through mid-November of this year, with 53 of those, or 62 percent, having ties to private-equity firms at one point in their lives.

Number Of The Day " Percentage Of US Companies With A Junk Rating"

This at the start of a deep and long recession...... After the events of the last 3 month it is valid to wonder how much of this debt will get bailed out ( GM....) or will end up without much disclosure on the Fed´s balance sheet......I wonder how many companies are now on the brink of bankruptcy just because they decided to make big debt financed stock buybacks or megalomaniac takeovers & buyouts......

Diese Zahl bereits am Anfang einer schweren und langwierigen Rezession bedeutet nichts Gutes..... Nach den Ereignissen der letzten 3 Monate darf man wohl berechtigt fragen wieviel von diesem Junk entweder ein Bailout ( GM.... ) bekommen wird oder gar ohne großartige Transparenz in der immer weiter explosionsartig wachsenden Fed Bilanz verschwinden wird..... Tragischerweise befinden sich etliche dieser Unternehmen nur dank massiver schuldenfinanzierter Aktienrückkaufprogramme und größenwahnsinniger schuldenfinanzierter Übernahmen ( denke vor allem an Private Equity aber leider auch an den Fall Siemens VDO, Conti, Schaeffler ) in dieser wohl letzlich "tödlichen" Situation.......


WSJ Junk-Bond Market Has Closed the Door
Yields Upward of 20% Make It Too Pricey for Borrowers; Zero Deals Made It in November

About 50% of U.S. companies have below-investment-grade credit ratings, making the $750 billion junk-bond market a vital source of financing for car makers, airlines, retailers, utilities, restaurant chains and media companies

>The next chart is making things even scarier........ Within the "junk" label the remaining "quality" has deterioting fast and furious especially over the past few years..........

> Der nächste Chart macht alles nur noch erschreckender...... Innerhalb des "Junkuniversums" hat sich zudem die Qulität besonders im Laufe der letzten jahre massiv verschlechtert......

Another LBO Deal Bites The Dust....

Looks like Ceberus and others that just a few month ago saw the golden era of private equity are trying to back out of as many deals they have made during the latest quarter of this period. Thank god that Ceberus had forced Daimler only to a few more concessions..... Mish once called the mania "Buyout Bingo". It has worked fine on the upside.....

Sieht ganz so aus als wenn Cebrus & Co die noch vor wenigen Monaten einie goldene Ära für Ihre Branche gesehen haben wollen momentan alles mögliche Versuchen um aus Ihren Kaufverträgen auszusteigen. Zum Glück hat Ceberus Daimer beim Chryslerkauf nur zu Nachbesserungen gezwungen.... Mish hat das ganze mal sehr treffend als "Buyout Bingo" beschrieben. Auf dem Weg nach oben eine tolle Geschichte.....

Cerberus abandons $7bn deal as Alltel founders
Cerberus Capital Management has pulled out of its $7bn deal to buy United Rentals, making the planned private equity takeover of the world’s largest equipment lender the latest casualty of the credit squeeze.

The news sent the company’s shares plunging 30% to $23.76. Cerberus had agreed in July to pay $34.50 per share. United Rentals said Cerberus’ action was “unwarranted and incompatible with the covenants of the merger agreement”.

Amid fresh concerns over the ability of private equity groups to fund LBO deals, bankers for TPG and Goldman Sachs were on Wednesday struggling to find investors for loans funding the $27bn buy-out of Alltel, the US wireless carrier. The underwriters reduced the size of the loan package to $4.89bn from $6bn and increased the discount on the issue to 96 cents on the dollar from 97.5 cents.

More trouble for Ceberus.... This deal was done during the past 2 yaers close to the paek of the housing market.....

Hier kommt weiteres Ungemach auf Ceberus zu..... Dieser Deal wurde binnen der letzten 2 Jahre auf dem Peak des Immobubbles abgewickelt.....

GMAC Unit Poses Challenge to Cerberus

The troubles concern GMAC's Residential Capital LLC, once a big source of profit but now burdened with a portfolio of loans rapidly declining in value. That has put the unit, known as ResCap, in danger of violating terms of loan agreements, triggering concerns that its lenders will demand immediate payment or force the unit into bankruptcy protection if GMAC or its owners don't step in with an equity