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US Companies Are Finding New Ways to Refinance Their Debt 💰

US Companies Are Finding New Ways to Refinance Their Debt 💰

Howling Markets
January 04, 2024

🐺 Hi pack-mates,

This is Howling Markets, the bulletin board where you can find all the latest and greatest news on the financial markets, explained in an easy and interesting way!

Today we will be covering:

Education: What Are Convertible Bonds? 📈
Jupiter Is Set to Airdrop 1 billion Tokens by The End of January 🪙
US Companies Are Finding New Ways to Refinance Their Debt 💰
Equity and Debt Markets Daily Update ⚖️
And more!

Market Watch 👀

Prices as at 7:00 am ET

What Are Convertible Bonds?

A convertible bond is a corporate debt security that pays an interest rate, just like traditional vanilla corporate bonds, but which can be converted into a predetermined number of shares of the underlying company.

Convertible bonds are defined as hybrid securities, meaning that securities they combine two or more types of financial instruments. In this case, convertible bonds are a mix between traditional corporate bonds and common shares.

These hybrid securities can be converted into shares at the discretion of the bondholder, only after a set of conditions listed in the bond indenture is met. The bond indenture is a legally binding contract that contains all relevant information about the specific bond that is being traded.

Generally, the bond indenture contains the conversion price, which is the price at which the bonds can be converted into shares. Additionally, the same legal document also reports the conversion ratio which determines how many shares a bondholder receives for converting one bond.

From the issuing company’s perspective, the benefits of issuing convertible bonds are undeniable as they will be able to raise funds without diluting their equity right away, plus convertible bonds usually yield a rate 2.5%-3% lower than traditional bonds, so the company will also be able to save on interest expense.

For a potential investor, instead, purchasing a convertible bond might be a good idea if the stocks are relatively expensive and it would be cheaper to become a shareholder by converting the hybrid security. Additionally, convertible bondholders benefit from the protection in case of default just like a traditional debtholder, but they also benefit from capital appreciation through the convertibility function.

Jupiter is Set to Airdrop 1 Billion Tokens By the End of January

Jupiter is an innovative decentralized marketplace aggregator, built on the Solana blockchain. In other words, the function of this platform is to scout and compare different decentralized exchanges (DEX) and to aggregate liquidity within the Solana ecosystem to provide its users with the best price possible for every transaction.

Even if this might seem as a pretty trivial function, Jupiter has already proved itself extremely valuable to the crypto community and, since its birth, it has already processed over $20 billion in transaction volumes on more than 14,000 exchanges.

Jupiter was created in 2021 by an anonymous developer, or group of developers, that goes by the name Meow. Since its launch, the platform never had its proprietary token, but now things are about to change!

The founding team has announced that Jupiter token (Ticker: JUP) will have a total supply of 10 billion tokens, and that 40% of it will be distributed during different stages of the airdrop.

However, the first airdrop, announced to occur by the end of January, will only consist of 1 billion tokens, just 10% of the total supply.

This initial airdrop offers a base 200 JUP to any user who is part of the Solana ecosystem, with the possibility of increasing to 500 JUP if they have traded more than $10 or completed 10 transactions before March 2022.

Do you believe that this token will be able to revolutionize decentralized exchanges by allowing traders to always access the best prices?

Today’s Howling Question

And now, it is time for our howling question!

If we consider that the average AAA corporate bond yield is 4.6% in the United States, what do you think is the average junk rated (CCC & lower) US corporate bond yield?

a) 3.5%

b) 5.6%

c) 7.8%

d) 8.9%

e) 13.3%

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

US Companies Are Finding New Ways to Refinance Their Debt

We have recently discussed how the high interest rate enviroment is posing many questions to the hundreds of businesses looking to refinance their debt.

According to Moody’s October survey, over the next five years investment-grade companies will have to refinance a record $1.26 trillion, while junk-rated have $1.87 trillion between bonds and loans.

One solution that most US corporations have started to adopt is issuing convertible bonds, solving the problem of having to pay excessive interest expenses. For comparison, US AAA investment-grade bond yields are 4.6% on average, whereas some companies have been able to issue convertible bonds with a yield lower than 1%.

This is the case with Uber, the multibillion company that in November 2023 decided to issue $1.5 billion in convertible bonds to refinance their maturing debt, saving millions of dollars in interest rate expenses as opposed to traditional corporate bonds.

Because of this undeniable convenience for most corporations, the issuance of convertible bonds has jumped by 77% in 2023 reaching $48 billion. However, analysts are saying that this figure is likely to keep growing throughout 2024 as most businesses will face the task of refinancing a wave of maturing debt.

What do you think about this interesting hybrid instrument? Would you buy one?

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

Well, the 3^rd of January was an interesting day to say the least. The market opened with a gap down, just like yesterday, but it continued to move relatively sideways until the last hour of the trading session.

Just before the market closed, the Feds released the Minutes, an official document published 3 weeks after the last FOMC meeting where they go over in deeper detail what they touched upon in the last meeting.

In this document it transpired that the Feds might not be as dovish as they market previously though and because of this the S&P500 slipped down -0.80% shortly after the document was published.

Similarly, the bond market also faced some volatility throughout the trading session. First, the 10 year government bond yields surged above 4%, but then they came back down closing the day -0.38%.