Bond investors are playing a tricky game with lower-rated U.S. retailers, and they appear to be losing.
Here’s how it goes: Investors buy beaten-up bonds of struggling store operators and earn big regular payments for as long as they can. The bond buyers win if the companies remain solvent for longer than expected or even improve their outlooks. They can also win if the debt is relatively high in the capital structure and they’re able to recover more money than they put in if the company goes bankrupt.
On the flip side, they lose if the borrowers’ condition deteriorates, even if the downturn is drawn out. That’s what’s happening now for store owners such as Toys “R” Us Inc. and Bon-Ton Stores Inc., which both hired advisers…
Read the full article at: https://www.bloomberg.com/gadfly/articles/2017-09-08/debt-traders-are-losing-the-junk-retail-game-with-toys-r-us
