review2 - A7 This is a classic Problem in Junk Bonds. The...

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A7 This is a classic Problem in Junk Bonds. The issue is timeless and the article is on that has data that can be used. Questions below require information from the following article on Junk Bonds issued by Macy's published 9/29/1992 in the Wall Street Journal. HEARD ON THE STREET by George Anders and Jeffrey A. Trachtenberg Staff Reporters of The WSJ Every now and then, a back-from-the-grave investment play on defaulted junk bonds turns out to be a huge winner. Two years ago, for example, most people had given up hope for Revco D.S. The drugstore chain was in Chapter 11 bankruptcy proceedings and posting severe losses. Its defaulted junk bonds traded as low as nine cents for each dollar of face value. But then Revco's operating results picked up. The company emerged from bankruptcy. And its bonds soared six-fold in value, as holders swapped them for new securities valued at about 55 cents on the dollar. This month the big debate on Wall Street is whether R.H. Macy & Co.'s defaulted bonds have any life left in them. A new Macy's bull has emerged: former Lehman Brothers analyst Jack Hersch, who correctly pinpointed Macy's troubles last January, shortly before the retailer entered Chapter 11. But although some people find Mr. Hersch's analysis intriguing, the prevailing wisdom on Wall Street is that Macy's tough times aren't over. In the eight months since Macy entered Chapter 11, its bonds have tumbled about 50%. The benchmark 14.5% bonds due in 1998 now trade at just 19 cents for each dollar of face value. Faring even worse are its 14.5% bonds of 2001, which trade at about 10 cents on the dollar and its zero-coupon bonds that are quoted at about 4 -1/2 cents on the dollar. Mr. Hersch, who now is research director at M.J. Whitman & Co., thinks it's time to call the bottom. He has started recommending Macy's senior bonds to clients on the belief that Macy has franchise value that current prices don't recognize. Further he thinks an outside investor might pay an above-market price for all of Macy's junk bonds--and then seek to swap those bonds for a controlling equity stake during the
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review2 - A7 This is a classic Problem in Junk Bonds. The...

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