The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Watch out, financial engineers are about

Leveraged buyouts and auto company problems are taxing the minds of bond investors, but there's a more insidious form of event risk they should be wary of. Company executives, under pressure from boards and active investors including hedge funds, are starting to engage in financial engineering to try to boost their stock price. Bondholders are set to lose out. Antony Currie reports.

WHAT IS THE biggest event risk that buy-side credit analysts will be grappling with in the next few months? The answer, given the turmoil of recent weeks, might seem obvious. In fact, though, it's not the fear of credits in a portfolio being subject to a leveraged buyout, whether real or rumoured. Nor is it how to deal with the fallout from the downgrades of the unsecured debt of Ford Motor Company and General Motors to junk status.

Both remain near the top of the list, but the event risk that is increasingly a concern to the credit buy side is the growing power of shareholders, and the increasing willingness of corporate chieftains to appease them. It could be as simple as a share buyback, but could go all the way to splitting up a company.

The fear that raises is simple, reckons Mark Howard, global head of credit research for Barclays Capital in New York. "It puts the interests of debt holders squarely at odds with those of equity holders," he says. "Such events can turn out to be benign to bondholders, but some managements will exploit the lack of contractual teeth in high-grade bond deals and layer on more debt."

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree