Latest news with #highyieldbonds
Bloomberg
18-07-2025
- Business
- Bloomberg
Banks Complete Upsized $4.5 Billion Boots Buyout-Debt Sale
Banks sold a larger-than-planned $4.5 billion of debt backing Sycamore Partners ' acquisition of the Boots pharmacy chain, selling $250 million more than intended to a market hungry for new deals. The Boots Group is issuing $3.25 billion -equivalent of leveraged loans across dollars, euros and sterling and a further $1.25 billion -equivalent of high-yield bonds in euros and sterling. The additional $250 million will go toward reducing a preferred equity contribution to the deal, according to people familiar with the situation.
Yahoo
15-07-2025
- Business
- Yahoo
Distressed Debt Loses Luster for Funds Seeking Drama-Free Return
(Bloomberg) -- In a world brimming with risk takers, some of the market's biggest gamblers are taking their chips off the table. Why Did Cars Get So Hard to See Out Of? How German Cities Are Rethinking Women's Safety — With Taxis Advocates Fear US Agents Are Using 'Wellness Checks' on Children as a Prelude to Arrests While receding fears of a global trade war and recession power rallies in everything from the S&P 500 to developing world currencies, it's a different story in the distressed debt space. Special situation funds that usually make their money by backing troubled companies through a turnaround are finding so few places to invest, they're focusing on the debt of healthier companies and are happy to collect the interest. 'You buy a few of these higher-quality names that bring you a steady stream of cash interest and bring some stability to your portfolio,' said Jacopo Beretta, a special situations portfolio manager at Lugano-based Graian Capital Management. It's a story being played out for special situation funds across Europe, which are finding an easier ride buying high-yield bonds that notched a second-quarter return of 10.9%, their best performance since 2022, according to a Bloomberg gauge. Ironshield Capital Management, for example, has put about two-thirds of its portfolio into the debt of performing borrowers that have enough assets to cover their liabilities and generate cash, according to Isharsimran Sawhney, a senior credit analyst at the London fund. 'You can still generate above-benchmark returns without buying names that can sell off severely on bad news,' he said. Unlike stocks, government bonds and most corporate credit indexes that have reversed their post-April 2 'Liberation Day' declines, prices of European companies with the lowest credit ratings of CCC have failed to recoup their losses and are trading on average at April lows of 75 cents on the euro. As fragile borrowers struggle to rebound from the recent volatility, the payoff for holding the debt of the riskiest companies has been negligible. And the holy grail of special situation funds — a good company hiding behind a bad capital structure — is a rarity. 'Most lower priced bonds have issuers that don't generate unlevered cash flow, with bad capital structures and liquidity issues,' said Sawhney. 'That makes it very difficult to take risk.' Some have suffered dramatic bouts of volatility. The bonds of chemical producer Kem One SASU issued by vehicle Lune Holdings, now worth around 43 cents, had risen to just below 80 cents in March after the company received emergency funding. But the €200 million ($234 million) injection wasn't enough to put the company's debt price on a sustainable footing, after a 82% drop in 2024 earnings. 'Secondary prices do not seem to fully price in the riskiest leg of the trade,' Graian Capital Management's Beretta said. Distressed activity at the moment is concentrated in a few large issuers like Thames Water and Ardagh Group. In those cases, the senior, higher-ranking debt trades with just a narrow discount to face value. Junior tranches that could potentially be wiped out in a debt restructuring are trading at bigger discounts, but neither of those options are tempting to Ironshield's Sawhney. 'We looked at them and thought what is really the upside?' he said. 'Some of them could actually be interesting short candidates.' By contrast, the primary market has been awash with securities that offer decent yields and less drama. New issues of French nursing-home operator Clariane SE, to British grocer Asda Group Ltd and Flora Foods Management BV offered yields of 8% and more, according to data compiled by Bloomberg. A deal from German auto supplier BOS GmbH & Co. priced in June to yield 900 basis points more than money market rates. There are also rich pickings in the secondary market, including names facing an imminent catalyst for full repayment such as a takeover. For example, the bonds of food delivery operator Just Eat Takeaway were trading in the 80s range late last year. Now they're near par — the price where they would be redeemed under their change of control clause as part of their planned takeover by Prosus NV. The special situations arm of Graian Capital, meanwhile, has been buying junior-ranking perpetual bonds of real estate companies that have relatively solid cash generation and assets. Stonegate Pubs is another borrower that's attracting interest from special situation funds. Its senior debt has traded above par since it was priced with a yield of 10.75% a year ago. The coupon is high for senior debt issued by a cash-generating company, but it was viewed as a penalty for a capital structure overhaul that hit junior creditors and required the owner, TDR Capital, to inject new equity. Such cases reflect a broader hunt for complexity premiums — but fund managers warn that they're becoming harder to find in today's market. 'It doesn't mean that opportunities don't exist, they are just scarcer than they were two years ago,' Ironshield's Sawhney said. 'And with the heightened economic and geopolitical risk backdrop, pricing makes even less sense today.' --With assistance from Sam Potter. 'Our Goal Is to Get Their Money': Inside a Firm Charged With Scamming Writers for Millions Trump's Cuts Are Making Federal Data Disappear Thailand's Changing Cannabis Rules Leave Farmers in a Tough Spot Trade War? No Problem—If You Run a Trade School 'The Turbulence Is Brutal': Four Shark Tank Businesses on Tariffs ©2025 Bloomberg L.P. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
11-07-2025
- Business
- Yahoo
The riskiest corner of the bond market is pointing to continued strength of the US economy
The high-yield bond market is suggesting that the outlook for companies and the economy is strong. Yields on the bonds are down, suggesting investors don't see much reason to worry about what's ahead. This risk-wary market is just as bullish on the American economy as stocks," DataTrek said. Anyone worried about the US economy can look to an unexpected corner of the market for reassurance. High-yield bonds, issued by companies with below-investment-grade credit ratings, are flashing signs that investors don't see much trouble ahead for these companies. DataTrek Research this week flagged that high-yield bond spreads—essentially the yield paid to investors over a benchmark like Treasurys—are low. When spreads are wider, it suggests investors see more risk ahead and are demanding higher compensation to hold the bonds. Yet, even with the possibility of President Donald Trump's sweeping tariffs raising inflation and negatively affecting the economy, high-yield bond investors are calm. "US High Yield corporate bond spreads are now lower than at any point in 2021. This risk-wary market is just as bullish on the American economy as stocks," DataTrek co-founder Nicholas Colas said. Colas noted that in 2021, markets were bullish on the prospects for the economy as the US began climbing out of the pandemic and households and companies were flush with stimulus cash. He compared the current strong performance of high-yield corporate debt to large-cap stocks, which are also riding a wave of bullish enthusiasm among investors. "Given that bond investors are a more cautious lot than their equity market counterparts, that is a bullish signal for stocks," he said. Elsewhere in the bond market, Treasury yields have edged up this week as Trump fired off a fresh salvo of tariff updates, most recently threatening Canada with 35% tariffs starting on August 1. Yet, some investors aren't worried. Steve Eisman, known for his role in "The Big Short," said this week that Treasury yields have been basically tranquil since 2022, indicating investors aren't worried about things like the deficit or mounting US debts. Read the original article on Business Insider
Bloomberg
10-07-2025
- Business
- Bloomberg
JPMorgan's Oksana Aronov Sees More Junk Firms Struggling to Repay Debts
Lower-rated companies paying more interest with new debt is a sign of rising credit stress as interest rates stay high and earnings decline, according to JPMorgan Asset Management's Oksana Aronov. So-called payment-in-kind — an arrangement that allows companies to pay interest with principal instead of cash — has jumped to nearly 9% of high-yield bond and loan interest payable globally, from about 4% in 2020, according to the firm's head of market strategy for alternative fixed income. Aronov says PIK is prevalent at retail companies, but also widely used in other industries, and she expects it to spread further to other sectors this year.
Forbes
08-07-2025
- Business
- Forbes
Quietly Profit From Wall Street's Latest Panic With These Bonds
Recession or bear market conditions Maybe you've heard some variation on this fear in the last few years: A lot of American companies are going to default on their debts. I know I have. Frankly, pushing back on it was among the most contrarian calls I've made during my investment career. And it was tough to stick with. I've been in plenty of conversations with bankers, hedge fund managers and other Wall Street types who thought a default wave was right around the corner. But it wasn't. And it isn't now—even though the fear remains. And we're going to tap this ongoing misconception for a cheap (but getting less cheap every day) 8.6% dividend in just a second. What I think many people tend to forget about this default panic is that it was once so prevalent that, in 2022 and most of 2023, it caused the market to heavily mark down high-yield corporate bonds (a.k.a. junk bonds). It never came to pass. As a result, we saw corporate bonds surge at the end of 2023, as you can see in the benchmark SPDR Bloomberg High Yield Bond ETF (JNK) above. And that surge in JNK has kept rolling, despite the April tariff selloff. That's put longer-term investors in a great spot. Junk? Not to them! Not only did defaults not rise—they stayed in what I consider the 'safe zone,' helping fuel demand for high-yield bonds. Delinquency Rates Since COVID, we've seen business-loan delinquencies at around 1%, rising to around 1.3% over the last year. That rise is pretty much insignificant, historically speaking. Defaults were lower in the mid-2010s, but interest rates were near zero then. Yet in the last few years, rates soared, then started to move lower—and corporate defaults still stayed relatively low. And if you look at just the default rate for speculative-grade bonds—the worst-rated and most uncertain corner of the corporate-bond universe—defaults have been falling for a while now. Analysts expect them to fall even further throughout the rest of the year. That's in large part due to an expected decline in rates, strong corporate profits and a surprisingly resilient US economy. That positive outlook has, in turn, helped keep demand for high-yield corporates so high that they've spent most of 2025 outperforming the S&P 500—a rare feat indeed. And they've done it while showing almost no volatility. With the stock market now fully recovered and starting to outperform high-yield bonds, it's only natural to worry if this trade has gotten a bit crowded. But some new data from the New York Federal Reserve suggests that, in fact, risk in the corporate-bond market is near an all-time low. Distressed Index The Corporate Bond Market Distress Index (CMDI) isn't well-known among most investors, but insiders know it as a reliable indicator of bond weakness. After a recent small spike due to the tariffs, the CMDI is falling again and is at a historic low as of this writing. The New York Fed says this 'improvement in market functioning is reflected in both the investment-grade and the high-yield CMDI sectors.' In other words, both low-risk and high-risk bonds are in a much healthier position than they used to be. Many fund managers have known this for a while, so they've been buying up corporate bonds. Wealth managers have realized this, too, and have jumped in—helping shrink discounts for corporate-bond closed-end funds (CEFs). Today, bond CEFs have a 4.1% average discount to net asset value (NAV, or the value of their underlying portfolios) far below their average of around 7.5%. A (Still) Cheap High-Yield Bond Fund Paying 8.6% Some high-yield bond CEFs are bucking the trend with wider discounts. One is the Western Asset Inflation-Linked Opportunities & Income Fund (WIW), which has a 10% discount that's been narrowing—moving closer to that 7.5% bond CEF average. That narrowing discount isn't the only thing the fund has going for it; with an 8.6% yield and 325 holdings, WIW has two other key strengths: broad diversification and a huge income stream. WIW lowers risks even more than the typical CEF, which will likely shrink its discount further. One factor at play here is the fund's focus on inflation-linked bonds. The vast majority of its holdings (now about 80%) are in TIPS, a kind of US government bond that pays out more income if inflation rises. Now, hang on a second, you might be wondering. What about all of that corporate-bond risk? Exactly. Since WIW only holds about 20% of its portfolio in corporate bonds, it isn't at risk if the corporate bond market suddenly worsens. And if it does worsen, WIW may attract a flood of income investors seeking a safe haven—like US government bonds. That really should already be happening, since WIW's total NAV return (the best measure of management's talents) has been beating the corporate bond market and the S&P 500 in 2025: WIW Beats Bonds and Stocks in 2025 These are a couple of reasons why WIW's discount should shrink further. But even if that doesn't happen, its portfolio value should keep rising as investors look for safety. And if we see a tariff-driven rise in inflation, WIW should benefit again, since its cash flow rises with inflation. As a result, the fund is positioned to rise regardless of how the market moves, yet it trades at a discount more than double the average CEF bond fund! This situation can't last. The fact that it still exists makes WIW a great place to invest while the market catches up—and collect an 8.6% dividend while you wait. Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report 'Indestructible Income: 5 Bargain Funds with Steady 10% Dividends.' Disclosure: none
