Last month, privately owned, US auto parts maker First Brands filed for bankruptcy owing between US$10 to US$50 billion. As details emerge of the collapse, there is speculation the company raised funds from multiple private sources for the same assets.
The sums at stake in the current crisis highlight how the boom in the US private credit industry during the past decade has supercharged private companies’ ability to borrow money. – Financial Times
While First Brands held $6 billion in high-yield, or “junk,” debt on its balance sheet, its current crisis stems from “off balance sheet” debt from private credit lenders. This summer, when the company hired Jefferies to help renegotiate the terms of the debt on its balance sheet, its lenders began asking further questions about its finances, discovering that it had been carrying billions of dollars in additional loans.
In court filings, some of First Brands’ lenders said this private debt had not been fully disclosed. Lenders also say the company pledged the future proceeds from some of its unpaid invoices to multiple creditors. – New York Times
First Brands’ debt is now trading at substantial discounts to face value, and investors stand to lose millions. Mawer has published an excellent article detailing why auto credit is one of the first sectors to show stress when consumer credit conditions begin to deteriorate. It also gives an excellent example of two companies’ approach to a declining market.
The US has started its easing cycle, and Rick Patel from Fidelity International explains what that means for global fixed income.
PIMCO has launched its fifth Australian fixed income ETF, the Short Term Active Yield Active ETF (ASX:EARN).
The ‘Yield is destiny’, bull market is explored as a new market theme by Robert Tipp of PGIM Fixed Income.
Seed Funds Management has launched its first ETF, the Seed Financial Income Fund Active ETF (ASX:SFIF).
AI companies need cash and debt investors look set to benefit. Daleep Singh of PGIM Fixed Income has written an interesting article about the market, also updating us on developed market rates.
In Australian corporate bond issue news:
- Australian Military Bank has mandated a 10.25-year, non-call 5.25 (10.25NC5.25) Tier 2 deal
- ON has launched a 10-year senior secured, fixed rate, green bond priced at 145 basis points over semi quarterly swap
- Lend Lease Financial has launched a perpetual hybrid on a fixed-to-floating rate basis at 170 basis points over semi quarterly swap. On Monday, when the company was taking indications of interest, price guidance was 220-270 basis points. Massive demand has allowed the company to lower the margin, which is very tight, given the security has been given 100% equity credit, meaning the funds raised will not be considered debt and so will not impact credit ratings
- Patrick Terminals has launched a seven and a 10-year senior secured bond. Price guidance is 140 basis points and 160 basis points over semi quarterly swap, respectively.
Have a great week!
