Davis Polk partner Michael Kaplan and Finance co-head Jason Kyrwood were quoted in the Wall Street Journal on the convertible debt and high-yield bond markets.

“Activity in the convertible debt market has picked up in recent weeks. These instruments are more appealing to companies looking to raise capital as the conversion price for the convertible debt is at a premium to market price, so that the company is effectively selling stock at a higher price,” Michael explained.

In terms of the high-yield bond market, Jason noted that for a long time, loose monetary policy allowed companies facing distress to delay restructuring by accessing very favorable bank or bond financing. He added that “the thesis for highly levered companies doesn’t hold together when you’re paying a coupon of 11% or 12% versus 5% or 6%.”

Jason also explained that the combination of higher interest payments and declining cash flows – especially in consumer-facing industries – will be a challenge for high-yield-rated companies.

“Fed Rate Increases Upended Funding Markets in 2022. Here’s What CFOs Can Expect in 2023,” Wall Street Journal (December 14, 2022) (subscription required)

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