Sunday, June 16, 2013

Barron's: "Another PIK-Toggle Bond Sighting To Pay A Shareholder Dividend"

Bearish note on PIK-toggle deals, written on May 21 of all days.

"Just in case it was unclear where in the credit cycle we are these days, have a look at the high-yield bond market and the sort of products it’s churning out today. Namely, we’re seeing a lot more so-called PIK toggle bonds. The 'PIK' part stands for pay-in-kind, meaning the company can make interest payments to bondholders not in cash, but in the form of – wait for it – more bonds. And the toggle part means that the company has the choice to make the payments in cash or in more bonds."


John said...

You didn't quote the important line about this voodoo (if not fraudulent) practice:

"this structure tends to show up toward the peak of a credit cycle, when investors are more willing to overlook such risky propositions against a benign default backdrop."

CP said...

Thanks - that's why we have trusty correspondents!