There's a war that's always being fought in financial markets -
sometimes beneath the surface, sometimes in plain view - between
the interests of debt holders and shareholders.
Through the depths of the recent depression in financial markets
and the worst revelations of corporate excess, that conflict has
been low intensity. The interests of bondholders and equity holders
have become, briefly, aligned. What's been bad for one group has
been bad for another. In extremis, both sides have compromised to
salvage the most they can from the wreckage of the latest corporate
collapse.
Last month's e2.3 billion mandatory convertible for Deutsche
Telekom marks an outbreak of the old tensions. Creditors were
relieved to see an over-leveraged company substantially increase
the equity in its balance sheet - albeit...
