Sunday, May 18, 2008

WSJ: PIK and Roll

by Bill McBride on 5/18/2008 08:58:00 PM

From the WSJ: PIK and Roll: Companies Seize On Perks of Loose Lending Terms

Last week costume-jewelry retailer Claire's Stores Inc. told investors it intends to pay interest on $350 million of its bonds with additional debt rather than cash.
...
Seven companies have flipped the switch on $2.4 billion in PIK-toggle bonds, according to Standard & Poor's Leveraged Commentary & Data. Univision Communications Inc., which recently tapped its revolving-credit agreement with banks for $700 million in cash, also may switch to paying interest on some of its PIK-toggle bonds with debt, a Fitch Ratings report suggested.
Bonds with PIK (payment-in-kind) toggles are the NegAms of the corporate world. Paying debt with more debt can't be a good thing. This shows how loose the lending standards were for corporate debt.