This line is what it looks like when an entire segment of the bond market everything but dries up.
State of play: The chart shows the average interest on newly issued trades in the high yield bond market, where companies with the lowest credit ratings borrow money (junk bonds, if you’re old school ).
- The only other time in recent history when the cost has been this high? During the global financial crisis.
Why is it important: The Fed’s rate hikes have driven up the cost of borrowing so much – and created such volatility – that only companies that really really need money to brave the market.
- Unsurprisingly, these tend to be the most desperate for money. And the riskier the business, the more it has to pay.
So far this month, only five companies have tapped into the market (there are usually dozens now), according to Pitchbook LCD.
- An example: AMC Entertainment.
- The movie chain has turned stock meme mania into more than $1 billion in equity issues since last year – and CEO Adam Aron proclaimed his New Year’s resolution was to refinance AMC’s debt into something cheaper.
But, but, but: The bond market did not oblige. AMC is paying 15% on new bonds that closed last week – and loans that were refinanced cost the company 11.25%.
- Those 11.25% loans were due to mature in less than a year, however…you know what I mean by desperation?