As debt prices trade below recovery values in an economic crisis, what opportunities are available for a highly levered company to reduce debt?
As debt prices trade below recovery values in an economic crisis, what opportunities are available for a highly levered company to reduce debt?
The winter of 2009 posed challenges to Cengage Learning, a highly levered provider of textbooks and professional materials that had been carved out of Thomson-Reuters through a 2007 LBO. The recession had not only weakened its pricing power, but its benchmark bonds had plunged to a level that in ordinary years would indicate a distressed value. Yet paired with these difficulties came an opportunity to reduce debt amid dislocations in the high yield and leveraged loan markets. In this case students study materials such as Cengage's capital structure and debt recovery analysis to create a pitchbook recommending whether the company should pursue debt repurchases, a debt-for-debt exchange, or maintain its current position.