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Zack Miller
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Financial advisor, industry consultant, and author of "Tradestream your Way to Profits: Building a Killer Portfolio in the Age of Social Media" (Wiley, 2010), Zack embodies the nexus between asset management, equity research, and new internet distribution technologies. As an asset manager, he... More
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Tradestreaming Media LLC
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Tradestream your Way to Profits: Building a Killer Portfolio in the Age of Social Media
  • Great resource for bond investors: understanding a credit agreement 0 comments
    Jul 8, 2009 6:34 AM

    I feel that sometimes I’m overly focused on finding and explaining the best resources online for stock investing.  That’s partly my bent but it’s actually very much indicative of the market.  Let’s face it: for the common investor, there is almost zilch for investing in debt.  There are a lot of premium services for institutional investors in bonds but for the rest of us, it’s a wasteland.

    It’s a shame, because according to how you read the numbers, certain sources say that historical returns on bonds are competitive to those of stocks but with less risk.

    I stumbled upon a site that I like very much, Distressed Debt Investing.  It’s a good source for professional investors and those individuals who spend time researching high-risk distressed credits.  Whether you’re a pro or an advanced individual investor, there’s something here for you.

    What caught my eye today was today’s post submitted by a reader entitled “Distressed Investing: How to Read a Credit Agreement“.

    It’s a great overview for everyone to get the lay-of-the-land of reading through these agreements.  While doing your investment homework on equities is important, I’ve been in the game long enough to know that the difference between losing and winning in the distressed bond market is how much work is put into dissecting these agreements and seeking legal input.  It’s these agreements that frequently determine your return on investment.

    According to the post:

    Let’s start with a loan. The primary document to review is the credit agreement. It contains all of the information you’ll need to understand the features of the loan. If it is a secured loan, you’ll need to review the Security and Collateral Agreement to learn which assets secure your claim. You can find the loan agreement on Bloomberg or, if you don’t have access to Bloomberg, in the company’s SEC filings (it’s normally filed as an exhibit to the 10K or 10Q filed nearest to the closing of the loan). The loan agreement typically has the following sections (though not necessarily in this order – different law firms have different templates for this document). The section you’ll spend the most time with – by far – is the negative covenants section.

    After an overview, the post describes all the sections included in these documents, why they are important and what to do with them.  It is really a great overview.  Look to the same site to soon launch an expert community, much like I wrote about in SumZero, but specifically targeted to bond investors.  Should be interesting.

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