Commentary

The Case for Covenants (Part One)

It’s a fact of life in leveraged lending that terms are market-driven. During periods of excess liquidity – when loan demand exceeds supply – structures become issuer-friendly. When investors pull back, for any reason, terms swing in favor of lenders. When concerns about China and commodities roiled markets in August 2015, the Dow dropped 2000

Two Way Street

“We can do this the easy way or the hard way.” “What’s the hard way?” “It’s harder. It’s harder than the easy way. That’s what I know.” This classic exchange between Benicio Del Toro and Alicia Silverstone in the otherwise forgettable 1997 comedy Excess Baggage came to mind as we followed recent developments in the

Elements of Corporate Risk (Last of a Series)

As we wrap up our special series on corporate risk, let’s review the elements we’ve covered. We began with integration risk and high capex. We then examined cyclicality and specialized sectors. Our third part covered short borrower histories, hockey stick growth, single products, and customer concentrations. Technology, regulatory, and legal risks followed that, as well

Elements of Corporate Risk (Fifth of a Series)

Being in an industry prone to litigation is one of the trickiest corporate risks to manage. For one thing, lawsuits and class action claims aren’t under a borrower’s control. For another, judges and juries can be fickle. In dealing with a similar issue, they might hammer one defendant with major damages while letting another off

Elements of Corporate Risk (Fourth of a Series)

In astronomical terms, it was a close call. Last Wednesday an asteroid almost a mile long passed within 1.1 million miles from Earth. The object, known as JO25 and nicknamed “The Rock,” was visible in small telescopes. “We’re safe,” remarked NASA plantetary defense officer Lindley Johson. ”From this one.” Keeping a sharp eye out for

Elements of Corporate Risk (Third of a Series)

Last week’s column attracted the attention of one of our most loyal readers, and an astute observer of the credit scene. To go along with capex and cyclicality as prime corporate risks, he told us, “I would like to put in a plug for ‘Where’s the cash?’” He continued, “Maybe in middle market companies it’s not

Elements of Corporate Risk (Second of a Series)

It’s hard to believe, but this July marks the ten-year anniversary of the collapse of Bear Stearns’ two sub-prime hedge funds, the first of a succession of events that eventually culminated in the worst economic downturn in the US since the Great Depression. While the recovery since has been anything but robust, the more the

Elements of Corporate Risk (First of a Series)

Institutional investors are combing through the private credit market searching both for higher returns and experienced managers to deliver those returns. The key to understanding why some firms are targeting higher yield investments is to also appreciate the kind of credit risks those managers are taking to achieve those yields. In this special series, we’ll

League of Their Own

At the start of 2017 spring training, the NY Yankees had a undrafted prospect on their roster named Ruth. Not the Babe, of course, though the coincidence has been noted. “It’s kind of cool to have the same last name,” said Eric Ruth, a 26-year-old pitcher. Interestingly other than the Bambino there have been no

Private Credit vs. Public Debt (Last of a Series)

For high-yield bond investors, March has been the cruelest month. First oil prices – often linked to bond prices – took a dive, from $54/bbl to $48 in just three weeks. Then last week the Fed hiked interest rates, and signaled they weren’t done by a long shot. That combination of happenings compelled junk buyers