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.
"Many companies, especially in high yield, are going to look for ways... to come up with a debt offering that is sellable, period," said Tom Graff, head of fixed income at Brown Advisory."The most obvious way to do that is to secure the new bonds, but that 'primes' old bondholders, effectively reducing the security for the old holders in favor of the new buyers."
AMC, Ferrellgas, Six Flags and Carnival did not respond to requests for comment. A spokesperson from Cedar Fair declined to comment. The majority of unsecured high-yield bonds issued since 2011 include terms which allow the company to issue new subordinating secured debt - without consulting bondholders - worth an average of 3.2 times earnings before interest, taxes, depreciation and amortization, according to Evan Friedman, head of covenant research at Moody's. That is up from an average 2.
Source: News Formal (newsformal.com)
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