High-yield debt gives distressed companies more time before their day of reckoning.
Inputs that matter: Axios reports, "Thanks to a flurry of refinancing activity, the amount of high-yield debt coming due in 2024-2026 has been cut by 40%, or $329 billion, from where it stood a year ago, BofA Global Research calculates."
- "This episode represents one of the most aggressive instances of maturity extension in the history of leveraged finance."
- "One reason there's been such a strong bid for credit is because it hasn't looked this attractive relative to equities since 2001," says Danielle Poli, portfolio manager for Oaktree Capital Management.
The opportunity: "The fact that yields are now consistently in that 7.5%-9.5% range makes a big difference for someone's portfolio," says Ken Monaghan, co-head of high yield at Amundi US.
- "The high-yield and leveraged loan markets are where riskier companies with the lowest credit ratings borrow, so they're the most vulnerable to default and bankruptcy when money gets more expensive."
- Allan Schweitzer, head of distressed credit at Beach Point Capital Management, warns, "For a lot of companies, that day of reckoning is not today or tomorrow—it's down the road."
Zoom in: The S&P 500 ended Thursday up by more than 10%, its best start since 2019, says Morning Brew.
- Primarily fueled by AI, GuruFocus explains, "The Stock Market is Significantly Overvalued according to the Buffett Indicator."
- "Based on the historical ratio of total market cap over GDP (currently at 189.3%), it is likely to return 0.2% a year from this level of valuation, including dividends."
Between the lines: According to ESG Today, "Citi's Jane Fraser established a 2050 net zero greenhouse gas (GHG) financing target for the bank on her first day as CEO. Bank of America, Morgan Stanley, and JPMorgan have made similar commitments."
- "Goldman has already reached over 20% of its 2030 target of $750 billion in sustainable financing, investing, and advisory activity after just one year."
Follow the money: "More small business owners report that higher interest rates are impacting business operations," said Holly Wade, Executive Director of NFIB's Research Center.
- NFIB explains, "Twenty-six percent of small business owners borrowed or tried to borrow money for business purposes in the last three months."
- Based on the NFIB survey, these high interest rates moderately impacted 35% of small businesses, and 44% experienced a mild effect.
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Read More
- https://www.axios.com/2024/03/26/corporate-bonds-interest-rates
- https://www.gurufocus.com/stock-market-valuations.php
- https://www.esgtoday.com/goldman-to-align-financing-activities-with-2050-net-zero-pathway/
- https://www.nfib.com/content/press-release/economy/new-nfib-survey-small-business-owners-concerned-with-high-interest-rates/