Wednesday, July 18, 2007

Bell Canada bondholders to sue company over LBO

I think the LBO mania will lead to more bond triggers that allow the bondholder to sell the bond to 100% when a change of ownership will occur or at least will give them a higher coupon when the rating will be cut. This will lead to less leverage and lower takeover prices.

That doesn´t help the current bondholders and i think that they have to blame themselves for their losses and they won´t have a chance to win in front of the courts. Back when they bought the bonds they couldn´t imagine in their wildest dreams what is going on right now and they now have to eat their losses........But the times are seen in Goldman, JPMorgan Saddled With Debt They Can't Sell the bond guys are already gaining ground....

Ich bin mir ziemlich sicher das der LBO Boom dazu führen wird das sich die Anleihekäufer zukünftig bei einem Eigentümerwechsel Klauseln zusichern lassen das Sie die Bonds im Falle einer Übernehme zu 100% zurückgeben können oder zumindest ein höherer Coupon lockt wenn das Rating gen Süden abschmiert. Das wird dann weniger Hebel und damit zu niedrigeren Übernehmepreisen führen.

Ich vermute das die aktuellen Anleihebesitzer sich diese Dimensionen die aktuell vorherrschen nicht einmal in Ihren "worst case" Träumen ausgemalt haben. Die Konsequenzen sind nun extrem kostspielig und es wird sicher nichts bringen etwaige Rechte vor Gericht einzufordern. Wie im o.g. Link zu sehen beginnt sich das Bild aber langsam wieder zugunsten der Anleihekäufer zu neigen.....
A lawsuit in the making by bondholders of Bell Canada Inc. may mark the start of a revolt by debt owners against leveraged buyouts.

"While equity shareholders appear pleased with the $42.75-a-share price tag, the bondholders have suffered since rumors of a potential takeover first surfaced in late March, with the benchmark 6.1%-coupon 2035 bond down about 23%," the report said.

"More and more bondholders are getting upset over equity-friendly deals," said Michael Gregory, a fixed-income analyst at BMO Nesbitt Burns. "This sort of thing may become more common."

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Anonymous Anonymous said...

From the article:

Once an leveraged buyouts gets under way, bondholders watch their investment-grade assets slip into junk status while the owners of shares of the same companies receive premiums as high as 25%.

Slightly fractured English here (should be 'once a leveraged buyout gets underway'), but it seems what has happened is that bondholders have been hurt by a market reaction to the LBO -- I guess others ('the market') seem to think the extra debt from the LBO may jeopardize the ability of the company to meet its obligations to all of its creditors (bondholders), including and especially those pre-dating the LBO.

I'm no legal expert here, but it is hard to see how this can be redressed in the courts, assuming the bonds have always been subject to market opinion, and there is no legal obligation on the part of the debtor to protect the interest of bondholders by, zB, specifically not agreeing to be acquired in this way.

It may be different if the action of a rating agency causes the bonds to fall, and creditors decide the action was unwarranted and unjustified.

This could be interesting.


10:34 PM  
Anonymous Anonymous said...

I think the LBO mania will lead to more bond trigger that allow the bondholder to sell the bond to 100% when a change of ownership will occur.

Achso. So there may be specific provisions in the bond covenant that apply? If so, why is a lawsuit necessary?


10:41 PM  
Blogger jmf said...

Moin Eh,

i also think that there is no way for bondholders to win in court.

The have to take care that when a rating change will occur they will get rewarded for the higher risk.

When they buy bonds without triggers there is no other to blame than themselves.

But the big losees will change how the current bonds are structured.

At least that´s what i´m hoping and thinking....

Today could be the day i open larger short positions in the broader indices and especially the Russel 2000

10:43 PM  
Blogger jmf said...

Moin again,

i have updated the post to make the statement more clear that the bondholders are acting like "schlechte Verlierer" :-)

11:29 PM  
Anonymous Anonymous said...

Today could be the day i open larger short positions in the broader indices and especially the Russel 2000

Vielleicht nicht fair, because the markets are already open, but it's not clear to me a 40% increase in INTC profits, and the confirmed demise of the two BSC funds that most of the 'smart money' no doubt already knew were Tod, will get enough of a reaction on Wall St for me to stick a few more toes in the 'short end' of that pool.

But I have some bear market friendly positions, and since my longs also generally hold up pretty well, the end result each day is usually a bump up.

Mal sehen...

9:38 AM  
Anonymous Anonymous said...

Markets holding up OK, as more or less expected. Rallying into the close. This bull market will be very, very tough to crack. I am still very, very cautious about shorting. I am happy with my current shorts, but adding to them is something I am being very careful about.


12:59 PM  
Anonymous Anonymous said...

Natürlich tod statt "Tod". Entschuldigung.


1:03 PM  
Blogger jmf said...

Moin Eh,

I´ve put my toe in the water and opened a small R2000 short position.

9:00 PM  

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