Fixed Income: Business Moves to Asia

Debt refinancing activity was dramatic throughout 2005 – and this trend extended from the bank debt market into the United States high yield bond market, despite the usually high cost of calling bonds before maturity.

The basic theme in the 2005 bond market, globally, was that if you didn’t need the cash, then you refinanced your bonds with cheaper bank debt and cash, but if you did need the cash or a maturity extension or amortization relief, then the fixed income market was there to offer the international shipping industry very good terms and pricing.

In the “didn’t need the cash” category, were General Maritime and CP Ships, both of which paid a whopping $115 to buy back each $100 face amount of bonds. On a net present value basis it was still cheaper to retire the issues when the companies analyzed the amortized premium versus the higher spread. Both bond issues were trading in the area of $115 when they were called. In the case of General Maritime, the company was also glad to get out from under some inconvenient covenants.

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