Bear Stearns Pays a Heavy Price
For an indication of how less forgiving the corporate bond market has become, look no further than Bear Stearns’ $2.25 billion bond sale on Tuesday. The Wall Street investment bank, which last week fought to dispel rumors of liquidity problems, proved it still had access to the capital markets when it sold new five-year bonds. But the interest rates it had to pay investors raised some eyebrows.
The bonds were priced to yield 2.45 percentage points above yields on Treasury bonds, half a percentage point above existing Bear Stearns bonds that also come due in 2012.
Just two months ago, a junk bond rated “B” was yielding that same 2.45 percentage points over Treasurys, a record low. The so-called spread on junk bonds has since jumped to 4.18 percentage points. Bear sports an “A+” credit rating, but appears to be paying a lot more than most “A” corporate bonds, which are currently yielding 1.25 percentage points more than Treasurys, according to a Merrill Lynch index.
The hefty rates Bear is paying on its new bonds illustrate “a willingness to secure liquidity at any price,”
analysts from Banc of America Securities noted in a report. The large
premium also implies that other companies that want to tap the
investment-grade bond market may have to pay significantly higher
rates, they added. (emphasis added)
-Mark Gongloff, Marketbeat http://blogs.wsj.com/marketbeat/2007/08/08/bear-stearns-pays-a-heavy-price/
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