Hybrid Vigor: Vol 1 Issue 29 "Put The Lime In The Coconut"

Dear Friends,

Well, I made it back from Colombia, only slightly the worse for wear.  I wish I had two thousand pesos for every time someone asked me if it was safe down there. At least in Cartagena, where I was, it seemed quite safe.  In fact, I left my wallet in the taxi that took me from the hotel to the airport to go home. The driver found it, went back to the hotel, saw that I had called looking for it, and brought it back to me at the airport.  So, apart from some reactions to the totally delicious food, I have nothing but positive things to say about my visit.

As far as my talk on the prospects for more Latin American convertible issuance, in the wake of Mercadolibre:  one theme I heard repeatedly from other speakers was that Latin Americans--especially Colombians--over-invest in “safe” short-term fixed-income instruments. Of course, with rapidly depreciating currencies amidst collapsing oil prices, the rates they’re getting on these instruments are a lot higher than what we get here in the land of ZIRP.  Still, it strikes me that promoting more issuance of convertibles to encourage equity investment could be a major positive in those economies.

One problem, as my colleague Curt Peters (who helped tremendously with the talk) has pointed out, is that Latin American companies tend to be asset-rich with small, closely held equity bases. As such, they lend themselves to straight debt issuance. Lenders take comfort in the value of the assets, and issuers don’t want to be diluted. But perhaps some lessons in the bells and whistles of happy meals, warrants and call spreads could go a long way.  What do you think, hombres de negocios?

Back home, we’re looking at moves in opposite directions from the two sectors in which I’ve long been a permabull. Things are looking up in healthcare, with Merck’s acquisition of Cubist and a market rich in “who’s next” speculation. Not so in energy, with oil falling to semi-astonishing levels. Jeff Alton talks about a few energy names inside.  It’s generally been a good long-term policy to fade short-term oil collapses. I’ve been doing it personally this time and have the scars to prove it.

As you’ve come to expect, we have the regular 20 brothers (Ugly and HOCS) this week, along with the latest installment of the On-Deck Circle.

Please keep in mind that Hybrid Vigor will only be free for a little while longer. We plan to go to a subscription model next month. We hope that you’ve seen enough value in our proprietary risk and rating measures and our market insights to subscribe. Please contact John Anderson at janderson@hillsideadvisors.com or (646) 665-4025 to discuss subscription options.

Bill

Click here to download our newsletter