BREAKING: For CPAs and Analysts Only
August 21, 2009
– Comments (27)
From the WSJ:
A number of corporations are quietly buying back bonds on the cheap in the open market as the financial system works its way out of crisis mode.
They are taking advantage of depressed prices to save millions of dollars in interest and debt-repayment costs.
In the recent round of second-quarter financial filings, companies including Beazer Homes USA Inc., Hexion Specialty Chemicals Inc., Harrah's Entertainment Inc. and Tenet Healthcare Corp. disclosed they had bought slugs of their bonds from the market at discounts to the debt's face, or par, value. Until the disclosures, investors were mostly in the dark about the purchases.
http://online.wsj.com/article/SB125080949684547827.html
NOW THE REST OF THE STORY....
Many companies are now borrowing money at higher interest rates from Wall Street to buy back debt at lower interest rates. Why would anyone do such an idiotic move you ask?
They will tell you because it's a good deal and to restructure their capital base.....but if you are losing money, borrowing more is NEVER a good deal. The real answer is much easier to understand and far more manipulative.
Simple....it is an easy way to report profits. When a company buys back its debt below face price, the difference between face and purchase price is reported as profit. The worse off financially the company, the cheaper its debt, and the more profitable it is to buy it back...especially if you are losing money and maintain a fiduciary obligation to your senior debt holders.
In the second quarter, Beazer spent $58 million buying back $115.5 million in bonds, paying an average of 50 cents for each dollar in debt. The bonds represented 8% of Beazer's debt.
Meanwhile, Hovnanian Enterprises Inc. paid $223 million to buy back $578 million in debt, mostly during February and April.
Why lose money actually building homes when you can make tens of millions or hundreds of millions simply buying back your own distressed debt with even more debt? How do you think so many companies are beating Wall Street Analyst estimates even though sales are evaporating?
You gotta luv the sheeple.
Welcome to the world of Credit Default Swaps....who needs to make money pruducing products when you can make MUCH MORE buying back your own distressed debt....with even more debt that bankers will gladly line up to give you, at a higher interest rate nonetheless, so they can make even more money selling SWAPs on the new debt..... and maybe taking the other side on the old debt.
Welcome to a form of insider trading that no one sees and leaves very little paper trail since there is no exchange for SWAPS....and it is a much larger market than equities. The stock market these days is for simply manipulating the minds of the sheeple...the real money is made in SWAPS.
Is this the New American Economy?...the BIGGER the Loser you are.....the more you make on Wall Street....too bad you are putting millions of legitimate businesses out of business and causing millions to lose their jobs and homes....not to mention the tax base of America to evaporate resulting in one of the biggest national security threats in our nation's history.
Who needs to worry about Al Quaida when you have Wall Street and the Fed to destroy America's economy.....and not only that, while its happening many Fools are cheering it on as they watch our country implode and millions of their fellow citizens lose their jobs, homes, and businesses.
9.09 The Mother Of All Ponzis
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