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fordy on 14 November 2012
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Kasz216 said:
Adinnieken said:
Kasz216 said:

I don't think the selling of bonds is so bad, a lot of companies sell bonds.

The distrubing part is that they are zero coupon convertable bonds rather then just regular bonds.

 

Zero coupon bonds are bonds that don't offer any interest payments.  Sony switching to Zero Coupon bonds suggests they're worried about paying interest on more bonds.   As such, Zero Coupon bonds go for much less in auctions.

Sony is offseting this by making them converable... So you can turn them into stock if you want at the end of the period.   Convertable stock basically being a "gamble".  Your stock MAY be worth the $100 note it's in, or if Sony's stock rises up... you may get back $120 worth of shares in Sony stock.

 

To me, it sounds like Sony is afraid to have to pay interest for bonds, but is making their bonds convertable because they are also afraid yields would be too low so that they would have to give away too much money 5 years from now that would break them.

So they are trying to create "Pot Odds" more or less by offering to cut into their own profitability more, if the company turns it around.

 

Suggesting they are very worried they won't have it turned around in five years.

 

EDIT: Also, I beleive it's a bad sign they are avoiding the US Market.  As the US Market tends to be more up/down... which again suggests that they think people won't look on these bonds too favorably.   It reminds me a lot of the various Euro countries that went in debt.

What happens to bonds if the company goes under or is sold?  Are bonds debt and do bond holders have the same clout as stock holders when it comes to bankrupt companies repaying debt?

Bonds are debt.

Bond holders actually have more clout when it comes to being repaid on a Bankruptcy then stockholders do. 

Stockholders are generally last when it comes to Bankruptcy filings.

I don't think Sony will go Bankrupt within 5 years but... they're far unhealthier then I thought.  To me it sounds like Sony is planning to kind of just limp along in the short term and wait for it's oppurtunity to see a big change, but doesn't see such an oppurtunity at the moment.

They would still have options and moves to play to prevent bankruptcy, they're just... bad ones that will hurt the company long term. 

 

Since the bonds are convertible, couldn't Sony just convert the bonds to stock just before bankruptcy in order to give the existing stockholders more leverage? Or doesn't it work like that?