Payment in Kind Bonds Tumble

Bloomberg: Bubble Bursting in Less Than a Week for Payment-in-Kind Bonds
onds that allow issuers to defer interest payments are nosediving less than a week after they were sold amid a sell-off of fixed-income assets.

Ardagh Group SA’s 845 million euros ($948 million) payment-in-kind toggle notes due September 2023 are indicated at 95.5 cents on the euro, down 4.5 cents from when the Luxembourg-headquartered packaging company sold them on Wednesday, according to data compiled by Bloomberg. German auto components maker Schaeffler AG’s 750 million euros of notes due September 2026 are quoted 97.2 cents down from a sale price of 100 cents on Thursday, the data show.

Both companies increased the size of their payment-in-kind note sales last week amid surging demand for higher-yielding assets, which pushed borrowing costs for junk-rated companies to a record low.
This is a small part of the global bond market, but it is very similar to the way China deals with insolvency: add more debt and keep the company operational. What happens if global interest rates rise and the cost of capital increases? The bill for malinvestment is always paid. Most like the yuan exchange rate tumbles...

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