Fallen angels – how to ride the upcoming wave

The coronavirus pandemic and low oil prices have led to a surge in ‘fallen angels’, companies downgraded from investment grade to sub-investment grade. Ford, Kraft Heinz, Renault and Marks & Spencer are amongst the issuers that have become fallen angels so far this year.

We often see price falls in such downgraded  bonds. Investment grade (IG) and high yield (HY) are typically treated …

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In defence of CDOs

CDOs (Collateralised Debt Obligations) are being hailed in some quarters as the next split cap catastrophe. As a result of the US sub prime mortgage crisis, some CDOs that are heavily exposed to the US subprime mortgage crisis have fallen dramatically in value and hedge funds that have a big exposure to these CDOs are on the brink of collapse. There are legitimate concerns with some aspects of …

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Structured credit – the ratings agencies fight back

Rating agencies have come under fire recently. A number of perceived gaffs haven’t helped the agencies’ credibility (we covered Moody’s changes to its bank rating methodology on this blog), but the biggest concern at present is regarding structured credit.

Some investors have always treated ratings agencies with a degree of scepticism, arguing that there must be a conflict of interest when comp…

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Greed is Good Again

20 years after Gordon Gekko told us that “Greed is Good” in Wall Street, 20th Century Fox has announced that a sequel called “Money Never Sleeps” is in pre-production. Is this the top of the market for equities then? The last film was released just ahead of the 1987 crash.

You used to have to rely on a shoe-shine boy to give you a stock-tip to gauge if the markets were getting frothy, but more …

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'Covenant-lite' diet causes no extra spread for hungry leveraged loan investors

In my catch up reading from holiday (Argentina – stunning and very very cheap!), I noticed that World Directories, a European telephone directory company, has re-financed its euro-denominated leverage loan to be ‘covenant-lite’. Covenants are very important for us as bond investors. This is because they impose restrictions on a company’s management by preventing management from undertaking acti…

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The long term effects of PE

Private Equity (PE) funds have been in the news for all sorts of reasons recently. On the one hand these ‘locusts’ are under attack from unions, but on the other they are praised by the head of the CBI. While there may be changes to their regulation or disclosure requirements, one thing is certain: the amount of money they have raised and continue to raise will make them a significant influence… Read the article

Hooks in the record books

A triple-C rating (CCC) is known as “the hooks” in junk bond parlance. Sounds a bit better than Moodys who define them: “…to be of poor standing and are subject to very high credit risk”. Despite that definition they have been doing very well over the last couple of years and yesterday the average spread on European bonds rated CCC & below reached 359 basis points, the lowest on record. To put … Read the article


Defaults are few and far between in the European High Yield market at the moment but we have another today as Schefenacker, a German auto supplier that makes mirrors and lights, has announced a financial restructuring. Holders of the €200m bond issued in February 2004 have been offered 5% of the equity.

This should serve as a reminder to the current jubilant credit market that companies can go…

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Too much choice?

More choice is a sign of greater prosperity, right? That tall skinny soya cappuccino extra hot (without chocolate on top) was just what you wanted, wasn’t it? It might not be. It turns out that the more choice you give people, the less satisfied they will be. It used to be the case that if you didn’t like the coffee from the shop it was the shop’s fault for only selling an instant brand. Now, i…

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Michael Milken

The ‘founder’ of the High Yield market, Michael Milken, was in town yesterday at a conference I attended. Mike is the guy who restarted the High Yield market in the 1980’s (high yield bonds were around during the great depression) when he saw great returns available on fallen angels. Mike served 22 months and paid almost a billion dollars in fines for securities fraud after making a fortune at …

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