Kicking Cans Down the Street Is Not Violence. Is It a Type of Fraud Perhaps?

April 25, 2024

green-dino_thumb_thumb_thumbThis essay is the work of a dumb dinobaby. No smart software required.

Ah, spring, when young men’s fancies turn to thoughts of violence. Forget the Iran Israel dust up. Forget the Russia special operation. Think about this Bloomberg headline:

Tech’s Cash Crunch Sees Creditors Turn ‘Violent’ With One Another


Thanks, ChatGPT. Good enough.

Will this be drones? Perhaps a missile or two? No. I think it will be marketing hoo hah. Even though news releases may not inflict mortal injury, although someone probably has died from bad publicity, the rhetorical tone seems — how should we phrase it — over the top maybe?

The write up says:

Software and services companies are in the spotlight after issuing almost $30 billion of debt that’s classed as distressed, according to data compiled by Bloomberg, the most in any industry apart from real estate.

How do wizards of finance react to this “risk”? Answer:

“These two phenomena, coupled with the covenant-lite nature of leveraged loans today, have been the primary drivers of the creditor-on-creditor violence we’re seeing,” he [Jason Mudrick, founder of distressed credit investor Mudrick Capital] said.

Shades of the Sydney slashings or vehicle fires in Paris.

Here’s an example:

One increasingly popular maneuver these days, known as non-pro rata uptiering, sees companies cut a deal with a small group of creditors who provide new money to the borrower, pushing others further back in the line to be repaid. In return, they often partake in a bond exchange in which they receive a better swap price than other creditors.

Does this sound like “Let’s kick the can down the road.” Not articulated is the idea, “Let’s see what happens. If we fail, our management team is free to bail out.”

Nifty, right?

Financial engineering is a no harm, no foul game for some. Those who lose money? Yeah, too bad.

Stephen E Arnold, April 25, 2024


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