Re: [lwside1] The Corporate Debt Crisis

["Bob Bronson" <bob@xxxxxxxxxxxx>]

Thanx, Henry.  What do you mean "Defaulted and distressed debts
now constitute 38% of total hy debt market" if default rates
are running around 8.5%?

>From what source (link) did you get this information?

Thanx in advance for your response.

Bob Bronson
Bronson Capital Markets Research


-----Original Message-----
From: Henry C.K. Liu [mailto:hliu@xxxxxxxxxxxxxx]
Sent: Tuesday, May 01, 2001 9:41 AM
To: pkt@xxxxxxxxxxxxxxxx; lwside1@xxxxxxxxxxxxxxx
Subject: [lwside1] The Corporate Debt Crisis


The latest data on high yield debt outstanding give a pessimistic
picture of the credit market. In 1990, high yield debt outstanding stood
at $180 billion, in the quarter ending March 31, 2001, it stood at
$613.2 billion (excluding 144A and Convertible Securities).

Rule 144A. SECURITIES ACT OF 1933--Private resales of securities to
institutions.
Rule144A offering of depository shares. The depository shares and the
convertible preferred stock will not be registered under the Securities
Act of 1933, as amended, or any state securities laws.
Convertible securities are usually either convertible bonds or
convertible preferred shares which are most often exchangeable into the
common stock of the company issuing the convertible security.
Being debt or preferred instruments, they have an advantage to the
common stock in case of distress or bankruptcy.  If the securities are
debt, they have a termination value that must be paid at maturity, or
bankruptcy may occur. If preferred, they have a liquidation value. There
is less risk in holding the convertible because it has seniority in
payment.

Some 19% of the high yield universe is telecommunication debt.
The spread between HY index and 10-year Treasuries is now 900 basis
points, near the all time high in 1991 of 975 bp.
Moody's trailing 12-month speculative-grade default rate has reached
8.5% and rising.  The normal average was around 2% (1997).
The size of the defaulted debt market in 2000 amounted to $650 billion.
In 1998, it was $70 billion.  Distressed debt market in 2000 was $400
billion.  In 1998, it was $50 billion.
Defaulted and distressed debts now constitute 38% of total hy debt
market.
8.4% of bank loans are in default.

Does not look good.

Henry C.K. Liu






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