That's what the spreads are implying according to Bloomberg. There are now 147 issuers with bonds trading at distressed levels vs around 60 back in November.
What's a bust for some is a potential bonanza for others.
Junk bonds are off to their worst start
since 1990, falling 1.8 percent and triggering $17 billion in losses this month,
according to index data compiled by New York-based Merrill Lynch & Co.
Yields relative to Treasuries are rising at the fastest pace in at least 11
years as prices drop.
The pain may only get worse.
Speculative-grade borrowers made up the majority of U.S. corporate debtors for
the first time last year, according to Standard & Poor's. The default rate
will soar to more than 8 percent this year, the highest since Enron Corp.'s
collapse rippled through the market in 2002, estimates Zurich-based UBS AG.
Yields show retailers, homebuilders and mortgage companies are among companies
at the greatest risk as banks rein in lending.
Continue reading "Junk Bonds: Expecting the worst bust since 2001?" »
- Hedge fund offshore tax breaks at risk as the Senate Finance committee is
looking at taking away shelter benefits
- The WSJ looks at the huge six year LBO run where they proclaim "The
party is over"; August and September deals registered the weakest totals
since November 2004 after the credit crunch hit.
- Dan Dorfman on how $1,000 an oz gold is coming closer to reality
- Pummeled junk bonds recovering, but on borrowed time for a bigger rout?
Continue reading "Offshore hedge fund tax breaks scrutinized; Looking back on the six year LBO run; Dan Dorfman on $1,000/oz gold and why it's not impossible; Junk bonds setting up for a bigger rout?" »
The next big wave in corporate defaults could come in 2008 with some $35 billion in debt defaults according to Standard & Poors. And that amount could be conservative:
The amount of debt on which U.S. companies
fail to make interest payments could soar to $35 billion by the end of 2008 as
higher borrowing costs and wary investors limit access to credit, Standard &
Poor's said.
Companies rated B or lower by the New
York-based ratings company could default on $35 billion in debt during the next
15 months, up from $4.5 billion so far this year, according to an S&P report
published today.
``These companies are highly reliant on
financial market access to support operational cash needs, but the plentiful
liquidity for high-yield borrowers is almost surely a thing of the past,''
S&P analysts led by Paul Coughlin said in the report. ``Over the coming
year, there are some risks of a protracted economic slump, a sustained rise in
borrowing costs and the inability to satisfactorily execute planned asset
sales.''
Continue reading "Music to a vulture's ear: S&P says defaults could soar to $35 billion in 2008" »
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- Emerging-Market Bonds Fall on Growing Subprime Mortgage Concern
- KKR, Homeowners Face Funding Drain as CDO Machine Shuts Down
- S&P may cut $1.76 bln in ABS CDOs backed by subprime
- Potential CDO downgrades climb to $1.4 bln - Fitch
- US's Paulson says subprime woes 'containable'
|
Continue reading "Emerging market bonds catches subprime flu; CDO market flu impact is widespread: underwriters, private equity, homeowners; S&P and Fitch possible CDO downgrades; Paulson subprime comments: woes "containable"" »
Michael Vranos has a long successful history in mortgage bond investing. His Ellington Management currently oversees $5.4 billion in hedge funds / private accounts, a $1.2 billion managed account and nearly $23 billion in CDOs. This year his performance hasn't been great with his mortgage backed credit funds up a measly 1.8% through the end of May and his overall return up only 3.81%. Now he wants to borrow $750 million to invest in distressed subprime debt. Maybe the timing is early; maybe it's not. But something doesn't smell very good about what he wants to do with the proceeds. The New York Times highlights his new July 12 dated private placement offering underwritten by Friedman Billings (which Vranos says the NYT never should have received):
Some $70 million of the offering’s
proceeds is expected to go toward buying equity in something called Spyridon
Holdings, which owns a real estate investment trust that Mr. Vranos’s
management company formed in May 2007. It bought $345 million of the riskiest
portions of mortgage pools, known as equity residuals, issued by the New Century
Financial Corporation, a subprime lender that declared bankruptcy in April. New
Century made the loans from 2003 to 2006, the filing said.
The $70 million earmarked from Ellington
Financial’s investors to buy those assets will cover about 40 percent of the
roughly $170 million Spyridon put up to buy them — it borrowed the rest. In
return, Ellington Financial investors will receive 40 percent of Spyridon.
No mention is made about the decline since
May in the values of subprime loans over all and in New Century loans in
particular. Even the lender’s high-grade paper is taking a hit — last week,
Standard & Poor’s downgraded by one notch several AAA-rated New Century
securities consisting of second lien assets.
Continue reading "Something doesn't smell right: new Vranos venture will take one of his entities out of its subprime debt" »
Did banks and other debt issuers pressure rating agencies to give sub-prime bonds higher ratings than they deserved? The SEC aims to find out:
