B3 Debt is the New Black

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


Record B3 Issuances Are Vulnerable To Downgrades And Default In An Economic Downturn [Forbes]

Over a decade of low interest rates and increased participation by non-banks has led to record high new issuance of B3 rated issuers.  44% of new issuers were rated B3 in 2018 in comparison to 22% in 2007, at the start of the last recession. 

Presently, “low rates support still-healthy EBITDA interest coverage. For example, in 2007 median interest coverage was 1.7x versus 2.0x in 2018 while leverage was 6.7x versus 7.0x respectively. Richer valuations and the cheap cost of capital have provided this group with a credit cushion.” 

Emphasis mine.

I’m not sure that people who aren’t immersed in this world realize how crappy B3 debt is. Or how much of it is getting pushed into the market. But here’s the thing.

So long as the Fed keeps its foot on the throat of interest rates … so long as the Fed embraces the Big Lie that near-zero interest rates prevent deflation rather than CAUSE deflation … there is no end to this.

What is financialization? What is the intentional blowing of an asset bubble? THIS.

Yay, capitalism!


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Peter
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