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bond categories

Covenant case study – after the good, the bad

We recently highlighted a bond covenant that benefited fixed income investors. After the good, this week we have seen the bad. In this case, a bond covenant may impact bondholders in a detrimental way. Both examples are evidence of how critical it is to have a thorough understanding of bond documentation ahead of investing in a bond.

Kuwait’s third largest bank, Burgan Bank, announced in a regu…

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How bond investors should assess the opportunities in the US high yield energy sector

U.S. high yield energy bonds have sold off recently, virtually reversing their Q1/Q2 rally. The main culprit is, again, oil prices.  The recent re-re pricing in oil has led to energy bonds trading at levels worse than the last time oil sold-off at the beginning of 2015.  In fact, the BAML U.S. high yield energy index this week reached its widest levels (in terms of spreads) since April 2009 at …

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2015-08 blog JT

Covenant case study: Change of Control

We’ve written in the past about some of the concerns we have over the gradual weakening of bond covenants (the legal language that protects the right of bondholders) over the past few years. However, today we have seen a real world instance of a bond covenant kicking in to the benefit of existing holders, namely the change of control. This illustrates how and why such covenants can help protect…

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XPO Logistics

XPO Logistics. A $2bn high yield transaction and why we didn’t play.

As value investors we would generally assert that every financial asset has its price. Few bond market offerings tick all the boxes, but if we are to be suitably compensated, and subject to certain red lines, we are generally sanguine.

Yesterday saw XPO Logistics, a third party US based logistics firm raise $2bn equivalent of debt across Euros and Dollars to part fund its acquisition of Norbert…

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Why have bonds sold off – and why did they even rally in the first place?

Ben Bernanke has spent a good deal of time explaining on his blog why he thinks interest rates are so low (something that Martin Wolf wrote a column on earlier this week).  An extremely quick and dirty summary is low nominal interest rates and yields can be explained by low inflation, however this doesn’t explain why real interest rates are also low.  Bernanke doesn’t think low real interest ra…

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Sorting the micro from the macro in Emerging Markets

While generating a lot of concerns, one of the benefits of the strong growth of the emerging market (EM) corporate bond universe in the past decade has been the diversification of issuers. The asset class, which at $1.6 trillion is now larger than the US high-yield market, offers a vast number of countries and industries to invest in. Contrary to the EM rhetoric that has been making headlines i…

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High yield floating rate note case study – an oasis of calm within the desiccated desert of duration

We’ve seen a swift and rapid re-pricing of the bund curve in recent weeks, highlighting again the risk to capital that bond investors face when yields start to rise. All major bond markets in Europe have been impacted to some degree. Nevertheless one corner of the bond market has remained very resilient: floating rate notes.

We have highlighted before how these instruments have some potentially…

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What are index-linked corporate bonds telling us at the moment?

When in past years I have fielded calls from bankers faintly like Chad ‘Ace’ Jefferson III (A Brave New World: Zero Yield Corporate Bonds) requesting any potential interest in new index-linked corporate bond issues, I have often begun my feedback by pointing to an old maxim. This well-known dogma posits that an index-linked corporate bond should price 25 basis points or so wider than a comparab…

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Krafty work – 3G and Berkshire Hathaway continue to play the arbitrage theme

Almost two years ago to the day we wrote about a return of animal spirits, the LBO of Heinz by Berkshire Hathaway and 3G, and the significant role debt had to play in the transaction. Yesterday Heinz announced that it is to merge with Kraft Foods to create the fifth largest food and beverage company in the world. The transaction will see Berkshire Hathaway and 3G invest an additional $10bn in t…

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Islamic-finance

The Middle-East – an expensive safe haven for bond investors

I am just back from a fascinating investor trip to the Middle-East, where I spent a week meeting with corporate and government bond issuers as well as market participants in the United Arab Emirates (UAE). We spoke at length about Islamic finance, the oil price impact and geopolitical risk.

When I asked the question of the oil price impact on the region to corporate issuers and government offic…

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