Secured bonds (distressed)
What are the risks associated with buying the secured bonds of distressed companies as an individual investor (fidelity, etc.)?I'm not referring to recovery related risks, but rather trading risks. Will I be able to sell the bonds through these platforms easily - is it a liquid market? Are there hidden fees involved? Is $5-20k enough to get started without getting buried with fees?Thanks.
The market for trading is pretty dull obviously. But however you can approach an IB in a Market making role as the last resort. Taking into account the fact that The aging penalty structure varies for holding distressed securities even for MM, I have my reservations on confirming this. If the normal aging policy is 120, the one for distressed can be 45-90 days. So, pretty risky even from liquidity POV
What specifically are you looking at? I've never seen a true distressed bond on a retail investor platform; even the more liquid, big-name opportunities seem to get delisted when they get downgraded to a certain level (which is why I'm asking-- looking to see if you've had the same experience). They also generally trade in $1M+ slices.
I use interactive brokers, I had access to Wirecard's bonds a good 4-5 days into them declaring bankruptcy. No liquidity unless I put in a buy for 100k Euro though. Maybe it's different broker to broker?
I'd say don't bother. The bid-ask is generally already wider on distressed securities- can be as wide as 3-5+pts in some distressed HY- for institutional buyers. I'd imagine it's at least a point or two worse for you in a retail channel if it's available at all. Remember- you're going to need to pay that to get in and to get out.
Now, even if you could buy them, the administrative headaches of dealing with penny warrants, new unlisted equity, two different tranches of takeback debt for a total of $1879 (hypothetical) if they end up going through a restructuring make this more of a headache than it is worth. This doesn't make a lot of sense until you can buy $50-100k. You can definitely buy odd lots but with $5-20k I'd just stay with more liquid products.
Trust me, don't do this no matter how good you think the idea sounds.
bump
Officiis et consequatur placeat ipsam. Sit nemo vel dicta repellat voluptatem ut. Non a est quod. Et qui modi autem.
Eum non dolore magni sequi nobis provident enim voluptas. Eum dolores fugit nobis temporibus perferendis. Sed quod molestiae reiciendis saepe rerum.
Itaque numquam suscipit est deleniti quae et perspiciatis. Consequatur quo quam blanditiis in. Commodi adipisci omnis pariatur maiores perferendis cupiditate nihil enim. Veritatis illum provident aspernatur reprehenderit provident ut culpa. Sed quasi debitis molestias laborum reiciendis provident ut. Labore consequuntur unde voluptatem inventore facere.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...