Bondholders in particularly hard-hit sectors like energy, travel and leisure have another issue to watch for as companies struggle to survive the economic shutdown — getting demoted by new debt issues, Reuters reported. This phenomenon is known in the market as getting “primed” or “layered,” where a company in need of cash offers a bond backed by collateral (secured debt), which has seniority over any previously issued unsecured debt. Being at the top of the capital structure means that in a bankruptcy those investors get paid back first. Since the start of the coronavirus epidemic, this has happened to investors in the debt of movie theater chain AMC Entertainment, theme parks Six Flags Entertainment and Cedar Fair, propane supplier Ferrellgas Partners and cruise line Carnival Corp., according to a Reuters analysis. Of the new issues currently trading, all are priced far higher than where the remainder of the company’s debt is trading.
