arnewe's  Instablog

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Independent market analyst. Focus: Nordic High Yield.
My company:
Alfred Berg
  • Could the Export Finance Bonds be bought back at par? 0 comments
    Dec 13, 2011 5:00 AM | about stocks: DNBHF, DNSKF, NDBAY

    The Norwegian Government's decision to wind down Eksportfinans led Moody's to downgrade the institution to a rating of Ba1, while S&P still see it as investment grade.  

    The negative reputational effect as well as the effect on financial stability leads me to believe this outcome was unintended by the government.  Interviews with the political leadership of the Ministry of Finance indicate that they are considering the best way to do damage control.  

    Issuing a guarantee would limit the market impact of the downgrades, but raises the natural question:  why didn't they think of that before?  A less dramatic, and a more probable, course of action would be to have the new government chartered entity buy assets from Eksportfinans, allowing the issuer to buy bonds back, possibly at par.  
    The format of such a buy back would either be in the form of an auction or at par.   Since not all debt could be bought back at once Eksportfinans would need to start in on natural end or another:  the longest/shortest, most widely traded, lowest in the capital structure.  Should the 'at par' solution be chosen,  this would make low cash price bonds attractive.

    Such a buy back would also be constructive for the value of stocs and bonds issued by the owners, other than the Norwegian government.  Other owners are DNB, Danske Bank and Nordea.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I am long EXPT bonds.

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