Author profile

Stefan Isaacs

Years in the bond markets: 19

Specialist subjects: European credit and high yield corporate bonds

Likes: Football, music, summer, classic cars & travelling

Heroes: Scotland's finest export - Bill Shankly

Equity multiple expansion to the rescue. A benefit to high yield ?

The high yield market rightly pays a good deal of attention to leverage trends (the relationship between debt and earnings). The larger the quantum of debt a business carries relative to its earnings, the greater the risk. Other metrics are arguably as important, though it is the leverage metric that consistently garners the lion’s share of attention. With spreads near the post Lehman tights, i…

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It’s a new dawn, it’s a new day. The ECB takes baby steps towards QE

Just when you thought the Fed had well and truly killed the carry trade, a surprisingly dovish Mario Draghi reminded markets yesterday that Europe remains a very different place from the US. Having previously argued that the ECB never pre commits to forward guidance, yesterday marks something of a volte-face. ‘The Governing Council expects the key ECB interest rates to remain at present or lowe…

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Heinz: Beans, Buffett and the return of animal spirits

After years of inactivity, the combination of strong corporate balance sheets and cheap funding has sparked demand for takeover deals. The largest and highest profile deal this year has been the acquisition of H.J.Heinz by 3G Capital and Berkshire Hathaway. It is exactly the type of business that Berkshire Hathaway’s Chairman and CEO Warren Buffett typically goes for: profitable growth; a very …

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Insane in the brain. Dangerous precedents being set in Cyprus

Depositors in Cypriot banks awoke on Saturday morning to learn a harsh lesson. A guarantee is only as strong as your counterparty. With the Cypriot banking system requiring €10-12 billion of bailout funds – some 60% of GDP – the government has been forced to accept burden sharing with depositors. Depositors who went to bed Friday night believing their savings were safe awoke Saturday to find th…

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European autos, stuck in reverse

French auto manufacturers Peugeot and Renault report full year 2012 earnings this week. If Peugeot SA’s write down announced on Friday is anything to go by – when it took a €4.7bn non-cash charge – the outlook for the company and indeed other European focussed auto manufacturers continues to be a bleak one. European market conditions have been described by S&P as ‘dire’. Overcapacity and genera…

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Contingent capital notes – bank equity’s best friend?

As investors, the majority of our time is spent pricing risk with an increasing amount of that spent trying to value optionality. We’ve always had to price the optionality inherent in owning certain bonds. For instance what’s the likelihood of a call option sold to a bond issuer being exercised? What’s the likelihood of an early refinancing, or perhaps a change of control? These and other optio…

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Peripheral corporate bonds and mass downgrade risk

Staying with the Bon Jovi theme, ‘Ugly’ was a track released by Jon Bon Jovi on his second solo album in 1998. It isn’t well known, or any good for that matter, but it does aptly describe the price action of Spanish and Italian corporate paper of late.

Plenty of attention has been paid to the yield on Spanish and Italian govies – currently around 7% and 6% for 10-year bonds – but their bellweth…

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Deutsche Bank 2012 Default Study – Default bark far worse than the bite?

This week saw Deutsche Bank publish their 2012 Default Study, aptly subtitled ‘5yrs of crisis – The default bark far worse than the bite..’ The annual piece is particularly interesting, especially because the market now has five years of data since the onset of the great recession.

At the risk of failing to do an in-depth report justice it drew out several significant points for credit investor…

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Debunking myths in the financial system- an annual review

Last week saw Citigroup’s credit conference & an opportunity for investors to catch up with a number of European high yield issuers. For a number of companies the message continues to be one of uncertainty, not least with regard to their banking relationships.

Back in 2008 Richard & I blogged about companies drawing down on bank lines (see here). Companies like CIT were doing so as they were fi…

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Eurozone mess – time for inflation protection

Travelling through Switzerland I can’t help but think that politicians both here and in the UK have a lot to thank their predecessors/electorates for.  The relative safe-haven status enjoyed by both economies reflects, at least in part, the arm’s length relationship with the euro. (Swiss readers may not take kindly to being compared with us Brits, but you take my point.)

The eurozone policy mak…

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