After years of borrowing for stock buybacks and company buyouts at extremely cheap rates, the tide is turning as the Federal Reserve raises its target rate and pulls stimulus. That’ll pressure the swollen ranks of over-leveraged firms and weigh on growth, Guggenheim Partners Global Chief Investment Officer Scott Minerd said. Pacific Investment Management Co. and BlackRock Inc. are among investors curbing purchases or being pickier about what they buy.
In particular, investors in the U.S. junk-bond market are becoming more choosy and less tolerant of debt backing risky takeovers, according to Rick Rieder, global chief investment officer for fixed-income at BlackRock Inc.
To be sure, some say it’s premature to abandon credit. Improved cash flows aided by U.S. corporate tax cuts and a long runway to refinance debt have pushed the day of reckoning farther into the future. The number of corporate defaults globally fell to a three-year low of 95 in 2017, according to a report Thursday by S&P.
One company I have in my stock holdings announced that they were unwilling to raise capital through the stock market as the stock had already fallen hard enough (and it appears they don't understand why). Instead, they're looking at selling "under-performing assets" to continue to grow.
It also appears that they are also close to their revolving credit limit. That's going to be an interesting risk because much of their revenue comes from multi-year contracts that guarantee payments (unless products are not delivered as expected or the counter-parties go bankrupt). They pretty much have guaranteed revenue, but with high levels of debt.
Submitted April 06, 2018 at 09:48AM by COMPUTER1313 https://ift.tt/2Hfpox2
