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."
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2 comments:

  1. JohnJune 16, 2013 at 10:25 PM

    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."

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  2. CPJune 16, 2013 at 11:02 PM

    Thanks - that's why we have trusty correspondents!

    ReplyDelete