O&M lessons for investors in high-yield perpetuals
Important to understand and be comfortable with the numbers before taking the plunge
DEBT-laden offshore and marine (O&M) companies that issued high-yield bonds have recently garnered unwanted attention. Less than half a year after offshore engineering firm Swiber Holdings went into judicial management, offshore vessel owner Swissco Holdings said in November that it would suffer the same fate after its lenders rejected debt restructuring proposals, from both the firm and an unnamed Chinese investor. Swissco and its subsidiary Swissco Offshore (Pte) Ltd have since filed for judicial management.
Other companies in the sector have also already defaulted on interest payments and appear to be teetering on the brink, with not much except the continued benevolence of their bankers to avert a collapse. It is probably safe to assume that when investors put money into those O&M corporate bonds, they likely did not consider such an outcome - or could have mentally assigned it the same odds that most polls had given Donald Trump - now United States President-elect - on the eve of the presidential election.
With those debt defaults in mind, it might probably be a good time for investors in recently issued high-yield perpetual securities to re-evaluate the possible worst-case scenarios for those investments.
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