From the Wall Street Journal:
Corporate Debt, Distress and More Borrowing:
March 16-20: the bond markets froze and investment-grade borrowers came to market, but concessions blew out and there were deep problems in the market
March 23: The Fed stepped in to backstop corporate investment-grade bonds
April 27-May 7: Bond sales (lending) are booming again in both investment-grade and high yield credit
“There has also been a sharp increase in the number of existing bonds from below investment-grade companies trading with yields at least 10 percentage points higher than U.S. government bonds”
JO: If we have extended lockdown and cash burn, then we’ll see a bunch of Chapter 11 reorganizations and lots of stockholders are going to get wiped out specifically for companies that are in weak COVID position and have raised a ton of debt to “survive” until we’re back. If we can bounce back quickly, it’ll be a good move but if we have an extended lockdown and recession, then what happens when the newly borrowed money runs out?
“Factories Close for Good as Coronavirus Cuts Demand: Factory furloughs across the U.S. are becoming permanent shutdowns, a sign of the heavy damage the coronavirus pandemic is exerting on the industrial economy.”
“America’s Smallest Stocks Are Staging a Comeback: Rally stands in contrast to economic data showing unprecedented job losses)”
JO: I’m not an aggressive shorter, but finding a small business heavily affected by COVID that somehow has rallied with the overall stock market would be a good short.