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Century bonds might be smart funding for an issuer but they are also a signalling tool that tell us about investor desire, confidence and changing market cycles
The preference for a diverse group of lead managers and the convention of reciprocity keep covered bond bookrunning competitive despite concentration so far this year
Chemical sector's growing uncompetitiveness a problem when it comes to attracting investment in the capital markets
When staff complain, they deserve a fair hearing, not a wall of silence
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The hybrid corporate bond market was, up until the credit crunch, gaining increasing popularity. For issuers, it offered the possibility of raising equity-like instruments at competitive costs while for investors it meant juicy spreads and apparently little risk. Times, however, have changed and with the crunch biting, it’s not just the banks that have suffered, some corporates are finding themselves in a tricky corner, and suddenly those hybrids are starting to look a little bit ugly. However, no investor can say that they had not been warned. Flexibility was always going to be what these instruments were there for.
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Failings in risk management models, ill-conceived bonus payments, the perils of cheap intra-bank liquidity and a headlong rush to build a CDO business: the catalogue of errors UBS owned up to this week is a manual of how not to run a bank. It also confirms that the losses at Dillon Read Capital Management were only a small part of the problem — the investment bank itself was responsible for most of the losses.
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The Bank of England has been much derided since the credit crunch began but its £50bn scheme to refinance UK mortgage backed securities looks like a deft piece of central banking. Offering long term finance while keeping risks firmly with the banks, the Bank believes it has not succumbed to moral hazard.
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UBS’s unprecedented mea culpa to its shareholders on its huge writedowns, published last Friday, reveals an unpalatable truth. UBS was not just careless and unlucky. Its risk control over the collateralised debt obligations desk was reckless and shoddy. While UBS was not alone in this, its failure was staggering.
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As the leveraged loan market struggles to get back on its feet after last summer’s near knock-out, few are willing to give it a hand. One quiet ally is the cash-rich mezzanine funds, which are eager to put money into new deals at higher spreads and lower leverage. But arranging banks must remember: mezzanine demand can only go so far in supporting a deal — they will still have to haul in the senior lenders.
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Cries of “saturation!” have started to creep into the Russian loan market, especially as some borrowers, such as Evraz, already want to raise their second multi-billion facility of the year. But there’s hope that the reopening of the bond market for issuers in EEMEA can offer some relief.