Toggling for dollars

7 November 2012 By Agnes T. Crane

Investors should be wary of bonds that can pay IOUs in lieu of interest. But a rash of issuance to fund dividends to private equity firms doesn’t yet look like a 2007-2008 rerun. The recent deals have protections built in that should help keep reckless behavior in check.

This content is for Subscribers only

To access full Breakingviews.com content you must be a subscriber. Please use the following link to request a trial.

Context News

Issuance of payment-in-kind bonds, known as PIK-toggle notes, has reached $4.4 billion this year as of Oct. 24, according to Standard & Poor’s Leveraged Commentary & Data. The structure allows the issuer to elect to pay interest with more debt under certain circumstances.

TransUnion sold $400 million of PIK-toggle notes on Oct. 23 at a yield of 8.2 percent. If the issuer elects to pay interest with more debt, the yield increases by 0.75 percentage point.

U.S. high-yield bond issuance in 2012 has already topped the all-time annual record of 2010, with $268.3 billion of bond sales, according to a Thomson Reuters tally on Oct. 26.

Email a friend

Please complete the form below.

Required fields *