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A firm can be financed with debt or equity. Issuing bonds to buy back stock is simply changing the structure of how the firm is financed. It does not have a mor

by JackFr 3y ago

A firm can be financed with debt or equity. Issuing bonds to buy back stock is simply changing the structure of how the firm is financed. It does not have a moral component. Where is the fraud?

discodave 3y ago
I don't think the piece is arguing that it's fraud, just that it's bad (for investors), maybe immoral.
djbusby 3y ago
For BBB the fraud is that the execs knew it was failing, used the debt to cash out. Maybe they lied to retail-investors but typically one has to tell the financier what the debt is for and then not doing that is a contract breach which could be labeled fraud.
- JackFr 3y ago
  They lied to no one. I don't believe anyone has questioned the financials. I find it amusing that everyone has sympathy for the the shareholders (who were given an opportunity to get out), while no one seems to feel a bit of sympathy for the bond holders. If anyone was defrauded (and personally I don't believe anyone was) it was them.
sgerenser 3y ago
This doesn’t apply to the BBBY case, but back when long-term corporate bonds could be sold at ~2%, it made a ton of sense to issue low rate bonds to buy back stock. Apple made a killing on this play in 2013-2017, then again in 2021: https://www.macrotrends.net/stocks/charts/AAPL/apple/debt-issuance-retirement-net-total https://www.macrotrends.net/stocks/charts/AAPL/apple/debt-is...
mschuster91 3y ago
Raising money by issuing stock for the purpose of modernizing a company is one thing, as an investor I'd be happy to buy such stock. But I would not buy stock only for the company to do buy-back programs for other shareholders, especially not if the company would be in a worse shape (i.e. less net worth of its assets and debts) afterwards.
- JackFr 3y ago
  You can't finance a stock buy back with more stock. A firm has assets and operations and those are funded with either debt or equity. Borrowing money to buy back stock is simply changing the capital structure of the firm.

by JackFr 3y ago

A firm can be financed with debt or equity. Issuing bonds to buy back stock is simply changing the structure of how the firm is financed. It does not have a moral component. Where is the fraud?

discodave 3y ago

I don't think the piece is arguing that it's fraud, just that it's bad (for investors), maybe immoral.

djbusby 3y ago

For BBB the fraud is that the execs knew it was failing, used the debt to cash out. Maybe they lied to retail-investors but typically one has to tell the financier what the debt is for and then not doing that is a contract breach which could be labeled fraud.

JackFr 3y ago
They lied to no one. I don't believe anyone has questioned the financials. I find it amusing that everyone has sympathy for the the shareholders (who were given an opportunity to get out), while no one seems to feel a bit of sympathy for the bond holders. If anyone was defrauded (and personally I don't believe anyone was) it was them.

sgerenser 3y ago

This doesn’t apply to the BBBY case, but back when long-term corporate bonds could be sold at ~2%, it made a ton of sense to issue low rate bonds to buy back stock. Apple made a killing on this play in 2013-2017, then again in 2021: https://www.macrotrends.net/stocks/charts/AAPL/apple/debt-issuance-retirement-net-total https://www.macrotrends.net/stocks/charts/AAPL/apple/debt-is...

mschuster91 3y ago

Raising money by issuing stock for the purpose of modernizing a company is one thing, as an investor I'd be happy to buy such stock. But I would not buy stock only for the company to do buy-back programs for other shareholders, especially not if the company would be in a worse shape (i.e. less net worth of its assets and debts) afterwards.

JackFr 3y ago
You can't finance a stock buy back with more stock. A firm has assets and operations and those are funded with either debt or equity. Borrowing money to buy back stock is simply changing the capital structure of the firm.