Look I’m not an equity guy or a credit guy, but these passages, from latest @matt_levine newsletter, strike me as kind of obviously wrong.pic.twitter.com/RaaoXuC36b
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All I mean is, say the outcomes are 60% recovery, 90% recovery and 120% recovery each with 1/3 chance. Then the debt will trade at 83 (probably a bit less) but the equity will be non zero, even though there is a 2/3 chance that shareholders will be wiped out.
Obviously if there imore certainty about the outcomes then the debt can imply a zero equity value, but that depends on the range of outcomes and their likelihoods, you can’t imply it from the price of debt alone.
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I think this is what you are getting at with “the case is about to be resolved”?
Thanks. Twitter will use this to make your timeline better. UndoUndo
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You need to look at all the debt, see where your bonds fit, determine if they are covered by the assets and discount them at a target return. I wrote about HTZ about a year ago and while the analysis is not exact, and likely incomplete, it gives the idea:https://themarketcyclist.com/2020/06/19/laughing-so-hard-it-hertz/ …
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