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John M. Mason

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  • CIT's Debt Issues Show Why the Economy Won't Be Picking Up Any Time Soon [View article]
    To me, this would come under the third option, "renouncing the debt". Nassim Nicholas Taleb and Mark Spitznagel suggest this in their Financial Times article this morning (www.ft.com/cms/s/0/4e0...). The existing shareholders have already given up their rights by not paying attention and letting the company go "down the tubes" so diluting the current equity holders is not the issue. The question then is what does providing the equity exchange do? Taleb and Spitznagel argue that the world has changed and is more volatile, therefore, debt is riskier than it was before. Because of this more equity should be involved in any financing decision.
    Who disagrees with this? But, what is getting equity for your bonds? It is basically renouncing the debt of the company on a gamble that the company will get its act together. This can also be done through bankruptcy.


    On Jul 14 02:16 PM DannyBoy29 wrote:

    > What about a fourth alternative, converting debt to equity? Granted
    > it would be dilutive to current equity holders and may not be an
    > option in all cases, I doubt CIT’s bond holders want a potentially
    > worthless stock, but in many cases it is a viable alternative.
    Jul 14 02:53 PM | 1 Like Like |Link to Comment
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