". . . Are the WDC bond underwriters evil for wanting to maximize returns? Is WDC management evil for purchasing Sandisk with borrowed funds?"
My point is that the underwriters clearly understand the risks involved and are pricing the notes accordingly. The secured note has a high interest rate because, even though it is secured, it is risky. The junk bonds are just that -- junk. What you may have missed is that the greater the leverage on the balance sheet, the greater the risks for shareholders. Remember that if revenues get a little soft because of slower than expected growth, a company with this much leverage could go broke, and the shareholders would get NOTHING until after the bonds, both the secured and junk bonds, were paid off.
As I said, the SanDisk deal is a good one, but I'm still wondering whether it is affordable for WDC. If worldwide economic growth were stronger, especially in the U.S., China, and Europe, I would worry less.
Art |
