Struggling borrowers and once-distressed issuers may be all that’s left for investors looking to juice returns in a market where bonds are now “high yield” in name only, Bloomberg News reported. The relentless hunt for risk assets pushed yields on junk bonds below 4% for the first time in the market’s history on Monday. The tidal wave of demand has slashed borrowing costs and opened up financing avenues for even the least credit-worthy firms, handing them an unprecedented opportunity to raise cash. Some $855 billion of junk-rated corporate debt, or around 58% of the entire market, is now trading at a yield of under 4%, according to JPMorgan Chase & Co. Less than 1% of all bonds in the Bloomberg Barclays U.S. Corporate High Yield Bond Index are below 70 cents on the dollar. Meanwhile, yields on bonds in the riskiest CCC bucket are now lower than the debt’s average coupon the first time since 2014, according to data compiled by Bloomberg.
The founder of a New York money manager and two associates were criminally charged on Thursday with running a $1.8 billion Ponzi-like fraud where thousands of victims were falsely promised steady returns on their investments, Reuters reported. David Gentile, the chief executive of GPB Capital Holdings LLC, was accused of cheating more than 17,000 retail investors taken in by promises of consistent 8% annual returns even as the firm was hemorrhaging losses. Authorities said Manhattan-based GPB told investors their payments would be funded by revenue from the firm’s holdings, including a group of car dealerships, when in fact a “significant” portion came from money from newer investors.
Greylock Capital Management says it’s really nothing more than a small business that should be allowed to use special bankruptcy rules to quickly cancel a lease on its expensive, midtown Manhattan office space, Bloomberg News reported. At a court hearing yesterday, attorney Jeffrey Chubak argued that the company qualifies as a subchapter V debtor because only its affiliates owe hundreds of millions of dollars, not Greylock Capital Associates, the entity that filed for bankruptcy Jan. 31. Once Greylock finishes deconsolidating its balance sheet, Associates will be under the maximum debt limit of about $7 million, Chubak told U.S. Bankruptcy Judge Robert Drain. “Obviously I don’t want this case to proceed in subchapter V if you’re over the debt limit,” Judge Drain said. Assuming Greylock can show the debt is low enough, Judge Drain said that he would be open to quickly considering cancellation of the office lease since the company has already moved out. After that contract is gone, Greylock will be able to file a reorganization plan that pays all creditors in full, Chubak said. Greylock, founded in 2004, is one of the best known hedge funds in emerging markets investing; within two months its assets under management will be around $350 million, down from about $1.1 billion at the end of 2017, according to court papers.
In the past few weeks, investors have bid up the share prices of companies such as GameStop Corp. and AMC Entertainment Holdings Inc., as short sellers have bet against them. GameStop is trying to survive a yearslong erosion of its business, which has relied for nearly four decades on people visiting its bricks-and-mortar stores to buy the latest videogames and consoles, as well as to trade in and purchase used games and gear. The company has been stung by mounting competition from retail giants such as Amazon.com Inc. and Walmart Inc., and the advancement of technology that enables people to download games directly from consoles and computers instead of buying hard copies. It has also gone through a period of high executive turnover, with Chief Executive George Sherman — a longtime retail executive who joined GameStop in 2019 — being the fifth person to hold the role since November 2017. To preserve its business, Grapevine, Texas-based GameStop has been working to pay down debt and pledged to accelerate its e-commerce operations. In the recent holiday season, the company’s e-commerce sales rose more than 300% from the comparable year-earlier period, helped by the release of new videogame consoles from Microsoft Corp. and Sony Corp. Analysts expect GameStop to post its fourth consecutive annual decline in revenue in its latest fiscal year amid declines in its core operations and efforts to streamline its business. AMC, the world’s largest cinema chain with nearly 1,000 locations, became the latest darling of the retail trading scene after it signed a series of financing deals that are expected to help it ward off bankruptcy. Since the onset of the coronavirus pandemic forced AMC to temporarily close most of its theaters, the Leawood, Kan.-based company has faced the real possibility of running out of cash, and warned investors in October that it might need to file for chapter 11 if it doesn’t raise enough money from investors willing to bet on its recovery. AMC, the world’s largest cinema chain with nearly 1,000 locations, became the latest darling of the retail trading scene after it signed a series of financing deals that are expected to help it ward off bankruptcy. Since the onset of the coronavirus pandemic forced AMC to temporarily close most of its theaters, the Leawood, Kan.-based company has faced the real possibility of running out of cash, and warned investors in October that it might need to file for chapter 11 if it doesn’t raise enough money from investors willing to bet on its recovery.
Delays in administering COVID-19 vaccine shots pose a fresh risk to investors who bet on a speedy vaccination process to help risky U.S. companies bounce back from the pandemic, WSJ Pro Bankruptcy reported. The approval of coronavirus vaccines made by Pfizer Inc. and Moderna Inc. last year propelled rescue financing packages for several cash-strapped companies, supplying them with what investors thought would be enough liquidity to keep them afloat until widespread immunity took hold. Cineworld Group PLC, AMC Entertainment Holdings Inc., Carnival Corp. and other companies with bleak outlooks because of the pandemic found financial lifelines to tide them over. These deals continued a trend dating back months before the vaccines were approved, as actions taken by the Federal Reserve and Congress, coupled with investors’ eagerness to continue lending, kept the corporate default rate well below analysts’ expectations. But the sluggish rollout of the vaccines is now undermining the timeline that investors projected when extending emergency credit. The U.S. government fell well short of its goal of vaccinating 20 million Americans in 2020, having administered just 2.8 million doses by the end of last year, according to federal figures, in part due to differing state policies that have led to confusion and shipment delays.
Some investors have been tempted to chase bigger gains — and have exposed themselves to potentially devastating losses — through riskier plays, such as concentrated positions, trading options and leveraged exchange-traded funds, the Wall Street Journal reported. Others are borrowing against their investment portfolios, pushing margin balances to the first record in more than two years, to buy even more stock. The stock market is on the verge of closing out one of its frothiest runs in years. Some of the biggest fortune makers include Tesla, up 691% so far this year, and fuel-cell company Plug Power Inc., more than 1,000% higher. Zoom Video Communications Inc. has added 451%, while scores of biotech stocks have also soared, including COVID-19 vaccine maker Moderna Inc., up 532%. “The stock market is euphoric right now,” said James Angel, a Georgetown University finance professor. “A lot of people are extrapolating from the recent past and going, ‘Wow, the market’s gone up a lot and I think it’ll go up more.’ We’ve seen this play out before, and it doesn’t end well.” A strong indicator of stock-market euphoria flashed red last month. Investors borrowed a record $722.1 billion against their investment portfolios through November, according to the Financial Industry Regulatory Authority, topping the previous high of $668.9 billion from May 2018. The milestone is an ominous one for the stock market — margin debt records tend to precede bouts of volatility, as seen in 2000 and 2008.
Blackwells Capital has made an unsolicited proposal to acquire the portion of Monmouth Real Estate Investment Corp. that it doesn’t already own in a transaction valued at about $3.8 billion, including debt, Bloomberg News reported. The all-cash offer at $18 a share was made Friday, and is the second time Blackwells has proposed acquiring the remaining interest in the industrial real estate investment trust. The offer price is a 6% premium to Monmouth’s closing share price on Friday, and about a 22 percent premium to the price on Dec. 1 when Blackwells made the previous offer, which was rebuffed. New York-based Blackwells has called on Monmouth’s board to create a special committee to review the proposal that excludes affiliates and members of the company’s founding Landy family, the people said. It has asked that the company engage in exclusive bilateral talks with Blackwells followed by a go-shop period if a deal can be reached, they said. Blackwells, which owns less than a 5 percent stake in Monmouth, believes the company is undervalued and has underperformed its peers. Blackwells believes there are several reasons for Monmouth’s underperformance, including its poor capital allocation and weak corporate governance, and could more effectively make the changes it needs as a private company. Chief among those concerns is the expensive financing it has taken on to fund its expansion over the years, and the company’s portfolio of securities in other REITs that have been a drag on earnings. Monmouth said last month that it had more than $10 million in unrealized losses on its securities portfolio during its fiscal fourth quarter. At the end of September, those investments included CBL & Associates Properties, which filed for bankruptcy protection in November, according to regulatory filings.
Lenders to deeply distressed companies are calling the shots in big corporate bankruptcies so far in advance that some cases are practically over before they get started, according to a Bloomberg News analysis. Investment firms and hedge funds are increasingly engineering bankruptcy loans and side deals to take control of chapter 11 reorganizations from the outset. They’re putting up desperately needed funds to keep the targets in business -- but often only after crafting terms that lock in rich rewards for themselves while potentially locking out rivals and lower-ranking creditors. The trend is sure to speed up cases, but it also forces judges to make quick decisions that may shortchange some valid claims. It’s a stark departure from older norms, when a troubled firm fell into chapter 11 and huddled with creditors -- overseen by a federal judge -- on a plan to repay debts in a way that was relatively transparent. In recent cases like J. Crew Group Inc., key features of bankruptcy exit plans were designed well ahead of the filing itself, out of view of the court and swaths of creditors. Similar tales are playing out in other large corporate bankruptcies. From 1995 to 2005, just 10 percent of bankruptcy loans made to publicly traded firms were linked to a specific chapter 11 exit plan, according to a working paper from Kenneth Ayotte of UC Berkeley and Jared Ellias of UC Hastings. From 2015 to 2018, the number soared to 50 percent. JCPenney Co., a U.S. retailer that went bankrupt early in the Covid-19 pandemic, entered chapter 11 with a deal in place for $900 million in debtor-in-possession financing. The catch: the JCPenney debt-holders funding it -- hedge funds included -- required tight deadlines for the restructuring, veto power over the process, a hefty interest rate and fresh legal protections for their existing holdings. Complaints poured in. One creditor group called the financing “predatory,” and another, its lowest-ranking creditors, likened it to a robbery. U.S. Bankruptcy Judge David Jones said that the deal contained “an awful lot that you look at and you just don’t like.” But where else would JCPenney get the money needed to avoid liquidation? Judge Jones approved the loan, and the department store chain’s stores emerged from bankruptcy about seven months after it sought court protection. Those bankruptcy lenders -- a group that as of Aug. 10 included H/2 Capital Partners, Silver Point Capital and Brigade Capital Management -- are now set to become the owners of most of JCPenney’s real estate holdings. Rebutting the attacks from other creditors, the lenders argued in court papers that their financing was the best deal available.
When the economy struggles, businesses typically hunker down and preserve cash by cutting spending and dividends. During the Covid-19 slowdown, companies controlled by private-equity firms have often gone the other way, borrowing heavily to pay big dividends to their owners, the Wall Street Journal reported. The payouts boost returns for private-equity firms but can load their companies’ balance sheets with heavy debt at a precarious moment. The maneuvers can leave companies in weaker financial shape, while helping private-equity firms lock in gains, often a few years after their initial investments. The amount of issued debt tied to such payouts, including both loans and bonds, grew to more than $29 billion this year, up more than 25 percent from 2019, according to S&P Global Market Intelligence’s LCD. Of that, loan volumes have grown well over 40 percent while bonds have fallen.
