dimelab dimelab: shrinking the gap between talk and action.

junk bonds Topic in The Credit Debacle Catalog

junk bond Default (4); Junk Bond Default Rate Passes 10 Percent (1); junk bond default rates (3); Junk Bond Defaults Soar (1); junk-bond market (1); U.S. junk bond default rate (2); U.S. junk bond default rate rises (1); U.S. junk bond default rate rose (1).

Tue 2009-10-27 12:58 EDT

Looting: The Economic Underworld of Bankruptcy for Profit by George Akerlof, Paul Romer

During the 1980s, a number of unusual financial crises occurred. In Chile, for example, the financial sector collapsed, leaving the government with responsibility for extensive foreign debts. In the United States, large numbers of government-insured savings and loans became insolvent - and the government picked up the tab. In Dallas, Texas, real estate prices and construction continued to boom even after vacancies had skyrocketed, and the suffered a dramatic collapse. Also in the United States, the junk bond market, which fueled the takeover wave, had a similar boom and bust. In this paper, we use simple theory and direct evidence to highlight a common thread that runs through these four episodes. The theory suggests that this common thread may be relevant to other cases in which countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust. We describe the evidence, however, only for the cases of financial crisis in Chile, the thrift crisis in the United States, Dallas real estate and thrifts, and junk bonds. Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

bankruptcy; Economic Underworld; George Akerlof; Looting; Paul Romer; profits.

naked capitalism Tue 2009-09-22 13:02 EDT

Bank of America: 40% of Junk Bonds to Default by 2013

With more than half the corporate bonds rated junk, thanks to highly-levered takeovers, it wasn't hard to imagine that a protracted economic bad spell could lead to a lot of defaults...the novel feature of the binge of late-cycle merger loans, ``cov lite'' deals, will make the damage worse...the odds of a successful [re]structuring are lower, and more companies will wind up liquidating. Thus not only will defaults reach new post-war highs, but recoveries are likely to be lower.

2013; 40; America; bank; default; junk bonds; naked capitalism.

Calculated Risk Fri 2009-09-04 19:01 EDT

Junk Bond Default Rate Passes 10 Percent

From Rolfe Winkler at Reuters: U.S. junk bond default rate rises to 10.2 pct -SP The U.S. junk bond default rate rose to 10.2 percent in August from 9.4 percent in July ... Standard & Poor's data showed on Thursday. The default rate is expected to rise to 13.9 percent by July 2010 and could reach as high as 18 percent if economic conditions are worse than expected, SP said in a statement. ... In another sign of corporate distress, the rating agency has downgraded $2.9 trillion of company debt year to date, up from $1.9 trillion in the same period last year. Bad loans everywhere ...

Calculated Risk; Junk Bond Default Rate Passes 10 Percent.

Wed 2008-06-11 00:00 EDT

Mish's Global Economic Trend Analysis: Junk Bond Defaults Soar; Citigroup "Uneasy"

over credit line drawdowns

Citigroup; Junk Bond Defaults Soar; Mish's Global Economic Trend Analysis; uneasiness.