Buybacks become minefield for distressed names
Rating implications
LIABILITY MANAGEMENT OPTIONS for sub-investment grade corporates have dwindled to a very short list in this downturn. With no new money available from the banks, debt exchanges and buybacks have become in many cases the only tools at these companies’ disposal, short of renegotiating existing terms or resorting to a debt-for-equity swap. But undertaking exchanges or buybacks has proved something of a minefield for many distressed companies – the result of a disparate investor base with very different and often conflicting motivations.
So while loan market trading levels have proved a boon for investment-grade corporates, who have gorged on the opportunity to buy back debt at well below par – New York University Stern School professor Ed Altman recently revealed that the $30 billion of US debt exchanged during 2008 was more than three times the total amount exchanged during the 23 previous years –...
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