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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (15342)	12/6/2003 10:24:39 PM
From: yard_man	Read Replies (1) \| Respond to of 306849

thanks, Less -- nice link there -- can't really be viewed as a contrarian signal then -- as it is linked to credit rating?? hard for me to reason it out since -- credit rating lower implies higher cost for new funds, but these folks want higher compensation immediately -- could this create a delta-hedge sort of problem, if it becomes widespread? For me it's a bit of a chicken-egg problem cause my understanding of bonds is weak. I mean, suppose company X's credit rating is downgraded -- price of debt falls == yields go up (for the marginal purchaser after the downgrade -- or a purchaser of a new issue the company might want to do), but here we have increased cost on existing debt -- there's non-linear feedback here, right?? If things take a turn for the worse, they take a turn for the worse again?? >>In addition to offering higher yields, AT&T offered other sweeteners to the bond offering. One example was the 'step-up' provision. This provision requires a .25 percentage point increase in the coupon rate for every one-notch downgrade of AT&T's credit rating. Another example is the option of bondholders to put the bonds back to AT&T if the firm's debt levels exceed certain limits. <<