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Courtesy of Grant's Almost Daily

The Wall Street Journal notes today that Amazon has debuted its Halo product, “a health and wellness tracker that the company said also tracks its users’ emotions.”

One thing’s for sure, user moods are looking better for those who own Amazon stock, which is up 84% year-to-date. Will that charmed run continue? For a look at the bear case on this seemingly unstoppable behemoth, see the June 26 edition of Grant’s. 


Dispatches from the deep end. Risk appetite continues to percolate across credit markets, as the triple-C-rated cohort of the Bloomberg Barclays High Yield Index saw its option-adjusted spread narrow back inside 1,000 basis points yesterday, roughly half the pickup on offer in March. 

That price improvement comes despite an historic proliferation of bankruptcies. Citing data from New Generation Research’s unit, the Financial Times notes that through Aug. 11, a record 45 U.S. companies with assets of at least $1 billion have filed for Chapter 11, well above the 38 $1 billion-plus bankruptcies logged by this time in 2009 and a record figure for a full year. 

“We are in the first innings of this bankruptcy cycle,” commented Ben Schlafman, chief operating officer at New Generation Research. “It will spread far across industries as we get deeper into the crisis. It’s going to be a bumpy ride.”  

More broadly, a report yesterday from Moody’s projected the trailing 12-month speculative-grade default rate will reach a range of 10.9% and 14.5% by February of next year, challenging the post-1983 record of 13.3% set in September 2009.  The rating agency’s B3 Negative and Lower list (equivalent to single-B-minus) stands at 26.9% of the speculative-grade population, down from a record 27.5% in May but still above the 2009-era peak of 26.1%.  That growth is notable as the financially stretched companies within the B3N cohort traditionally default at more than three times the long-term average rate for junk bonds. 

The spate of restructurings and distressed situations, in tandem with the broad erosion of debt covenants, has yielded an increase in acrimony among various creditor contingents as they fight for claims on finite corporate assets. Let’s review a trio of such situations: 

On June 8, mattress maker Serta Simmons Bedding, LLC announced a debt exchange with a lender group including asset managers Eaton Vance and Invesco, elevating the cohort to senior status over another group of lenders including private equity giants Apollo and Angelo Gordon in return for $200 million in fresh capital.  On June 20 the New York State Supreme Court threw out a challenge from the suddenly-subordinated p.e. lenders, completing a role reversal as the Apollo and Angelo Gordon pair were outmaneuvered by the asset managers. 

The thwarted private equity contingent had their own plans, which included shifting Serta Simmons’ intellectual property into a new subsidiary and out of reach of the rival creditor group.  “They were threatening to absolutely screw us,” Eaton Vance portfolio manager Craig Russ told The Wall Street Journal on June 26.

Bankrupt Ascena Retail Group, Inc., which owns the Ann Taylor and Lane Bryant apparel brands, is another contentious dispute, this time pitting creditors against the company. Bloomberg reported on August 14 that a trio of investment funds have hired law firm King & Spalding to challenge the terms of a debtor-in-possession (DIP) loan which gives exclusive participation rights to lenders who approved the company’s new financing, leaving those who resisted the terms of the DIP out in the cold. 

The saga of cosmetics concern Revlon stands as perhaps the most striking example, setting a creditor cohort against Citigroup, the bank acting as administrative agent.  Earlier in August, Citi mistakenly wired some $900 million to a cadre of Revlon creditors, including hedge funds Brigade Capital, Symphony Asset Management and HPS Capital Partners.  

While Citi claimed the incident was a simple administrative error, the trio refused to return the funds, accusing Citi of helping Revlon to use “manipulat[ive]” tactics to shift valuable collateral out of the creditors’ reach.  The hedge funds allege that, lacking sufficient support for its plan from lenders, Revlon (with Citi’s help) borrowed additional funds via a revolving credit facility.  In pursuing that transaction, the company brought investment bank Jefferies into the fold as a temporary creditor, tipping the voting scales in favor of the debt exchange and subordinating the hedge funds in the capital structure food chain.  

Of course, the peculiar combination of economic distress and monetary abundance looms large in these disputes. An anonymity-seeking financing lawyer tells the FT today that the situation is unlikely to change anytime soon, “given what looks like a perpetuity of zero interest rates and infinite liquidity.”


Another week of consolidation as Reserve Bank credit (the sum total of interest bearing assets at the Fed) registered at $6.97 trillion, marking the ninth straight reading just below the $7 trillion mark.  That brings the three-month annualized growth rate to 5.5%, and 83% on a year-over-year basis.  


The Fed’s widely expected announcement of a shift to so-called symmetric inflation targeting spurred a selloff in the long end of the Treasury curve, as the 30-year bond jumped 8 basis points to finish above 1.5% for the first time since June, while stocks finished marginally higher to extend the S&P 500’s winning streak to six. Gold reversed early gains and fell nearly 1% to $1,936 an ounce, while WTI crude remained near $43 a barrel. The VIX caught a bid for a second straight day, closing at a one-month high near 25.5. 

- Philip Grant

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