Managing Liquidity in a Challenging Economic Environment
In a recessionary environment, many companies are faced with the challenge of adhering to their debt covenants, paying interest on their bonds and bank debt, and ensuring liquidity for ongoing operations. This is important to stock investors because equity shareholders in a company hold claim only to the value of the company that exceeds its debt obligations, and creditors typically take precedence in the case of a bankruptcy restructuring.
In a similar vein, the expected return of a company’s bonds to bondholders must be scenario-weighted based on the likelihood of the company’s ability to meet its contractual interest and principal debt payments. Accordingly, the ability of a company to structure its debt obligations and manage its liquidity is an essential consideration when evaluating a potential stock or bond investment.
Read more on this subject here: https://www.bloomberg.com/news/articles/2020-05-17/behind-royal-caribbean-s-lifeline-a-shrewd-bond-market-maneuver?sref=9h7vNySJ
— Anthony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management
