Cracks in High Yield Companies
Show Up Early
Yesterday we tweeted about
Kodak emerging from Bankruptcy. Kodak was founded in 1880, at its peak
employed more than 60,000 employees and filed for bankruptcy in January 2012.
So, was bankruptcy the catalyst for this storied American bellwether's bond and
equity prices to plummet? No, it was not...In early 2011, Kodak unsecured
bonds traded at PAR. It was already an older-line, dead or
dying business that had significant competitive headwinds...It already had
YEARS-long delays in embracing digital camera technology...It already was being
weighed down by high pension costs...It had already expanded its adviser's
duties to explore bankruptcy, among other options, and drew down on a $160 m
credit line...It wasn't until September 30, 2011 when Kodak publicly confirmed
hiring restructuring lawyers that the equity fell below $1/share. The
unsecured bonds fell to the 10-20 range, and the equity eventually went to
zero. Kodak is merely an example of the dying businesses we focus on that
have weak fundamentals, are not macro-timing oriented, and have multiple
catalysts to drive bond prices lower.
We have found a tremendous
amount of catalyst-driven, fundamentally weak, high yield credits that together
have created a tremendous opportunity to be short.
Tradex Global Advisory Services, LLC
investorrelations@thetradexgroup.com
203-863-1500
@Tradex_Global
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