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> The recent global market selloff has driven corporate funding costs higher, meaning there’s now a higher chance a lender could opt to skip a call because it c
by ericpauley 4y ago
> The recent global market selloff has driven corporate funding costs higher, meaning there’s now a higher chance a lender could opt to skip a call because it could prove expensive to replace an existing note with a new one.
What? Can someone explain this? Seems exactly the opposite, where lenders would want to call to replace with higher yield debt. It would be debtors that wouldn’t want it.
- blitzar 4y agoThe bonds generally have a coupon reset equal to the benchmark interest rate plus a pre-defined credit spread, defined at the original issue date, if the bond is not called. When they were first issuing, with rates approx 0% the spread needed to be pretty high, think base rate +5%. With rates now approx 5% they could issue new debt at base rate +3% and repay the old ones. Now that they have zeroed out the CS ones, investors might want base rate +10% rates to take on the risk - in which case the issuer would be happy to roll over the existing bonds.