Credit Default Swaps Destroying America
Since bankers no longer have to care whether debt ever pays off.....infecting the economy with too much debt is actually profitable for banks.....even if it eventually destroys the economy.
On Thursday, Standard Pacific Homes sold $280 million dollars of bonds yielding 12.5% to maturity.
Why??? To pay off debt yielding only 6 1/2 to 7 3/4%.
The Company intends to use the net proceeds from the offering, or approximately $250.6 million (plus cash on hand to pay accrued interest) to purchase, redeem or retire debt of the Company. The Company intends to use up to $175 million of the offering proceeds to purchase through tender offers (and to pay related expenses), first, the 6 1/2% Notes due August 15, 2010, then, to the extent any amounts remain, the 6 7/8% Notes due May 15, 2011 and finally, to the extent any amounts remain, up to $50 million principal amount of the 7 3/4% Notes due March 15, 2013 (although the Company reserves the right to increase the amount of notes it is offering to purchase in the tender offers)
Borrow more at over 12% to pay off less at under 7%, and the company's 7% debt was junk?..........clearly this can't be in the interest of shareholders to refinance lower cost debt at a higher rate.
Who benefits?....the banks or investment groups that sold the swaps on the redeemed debt of course.....they never have to pay off the massive premiums on the swaps and now they get to sell SWAPs on the 12% debt at an even higher premium to some poor Foo'ls pension fund.
Don't worry, they may never pay off either.....SPF may end up borrowing $500 million at 20% to keep the charade moving.
You see, Standard Pacific never has to worry if it ever makes money selling homes any more...it hasn't made a profit in years......it doesn't have to as it is in the debt producing business.
The problem is if you are a competitor that has to pay employees and make a profit....you are out of luck as SPF can sell homes at whatever price it takes to move inventory....even if it destroys the value of homes previously sold in that neighborhood.
How long can this game go on??????? Until practically the only thing America is producing is debt, few are making profits, and so many are unemployed that the few that are working can simply no longer afford to support them and the rest of government's consumption needs.
Welcome to 9.09....you are learning that no longer do SWAP infected companies have to produce a profit to satisify Wall Street and get support from the analysts.
Did anyone notice how low the credit rating is on the new debt??? Can you imagine how high the SWAP premiums are going to be???? Profits are for panzies.....the real money in business these days is financial alchemy...even if half the country is unemployed and the other half is depdendent on government for income.