Tuesday, February 24, 2009

Rising Loan Prices Causing Debt Buybacks to Cease

An indication of the current frothy optimism in credit prices is today's decision from Cedar Fair Entertainment, which notified its lenders it is scrapping a proposed buyback amendment for its term loan. Cedar Fair had previously announced it was intent on buying back up to $125 million of its $1.467 billion L+200 term loan maturing 2012, and agreeable accounts would receive a 10 bps consent fee. The price of the loan in the meantime rose from the high 70s before the announcement to mid 80s early today. The rapid price appreciation in the trading level dissuaded Cedar Fair management from going through with the transaction.

Monitoring companies buyback decisions of their own debt securities is probably the most objective metric of whether or not the credit market is currently experiencing a micro bubble. With more announcements of this kind, the bubble is likely set to pop soon. Sphere: Related Content
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Anonymous said...

Based on a single data point, consisting of a fairly low yielding loan, you have concluded debt buybacks have ceased? Well done.