Investors and fund managers who hold US securities in their portfolios will soon find themselves in a decision-making dilemma. Given the company’s proposed redemption project, it will be up to them to choose between exchanging the fixed-income securities for company stock, accepting a “reverse auction” – where the company will pay cash for these securities – or exchanging the existing bond securities for a new bond with new terms. It is worth noting that regardless of the choice, there is no possibility of recovering the entire investment value.
These options fluctuate depending on the size of the debt discount received from creditors and the amount of loan they are willing to accept. The recovery plan still needs to be voted on and approved, which requires at least two-thirds of creditors’ votes. This vote is expected to take place later this year. Despite the uncertainty, managers and experts expect creditors to agree to the terms, leading to a consequent liquidation of the securities between March and April of the following year.
What can we expect for the future of Americana (AMER3)?
According to Americanas’ own statement, the discount applied upon liquidation of the bonds will range from 70% to 80%. This means that investors and creditors will suffer significant losses. However, experts believe that these alternatives are better than the total loss of the amount invested in the company’s securities. Three main options have been proposed for funds and investors who own these bonds:
- Exchange of bonds for new US debt assets taking into account the new circumstances of the company.
- “Reverse Auction”: Americanas will pay cash for the securities, perhaps at a significant discount due to the company’s current financial condition.
- Converting bonds into company shares. However, fixed income funds can be excluded here, due to limitations in variable income asset allocation.
What are the risks and lessons learned in facing this challenge?
In addition to the terms offered, there are many uncertainties surrounding the payment capacity that the company can offer investors in these securities. Another important issue is that the situation in America is still very uncertain. In the same context, we often remember that despite this important step, approval of the plan is still pending. Furthermore, there are risks associated with operational improvements, and maintaining a challenging macroeconomic scenario.
However, even in the face of so much uncertainty and challenges, analyst Adriano Casarotto, of Western Asset Management, believes the “lesson” fund managers have learned from this case is the value of diversification. Looking for diversified investments, including good ones, can bring more security to the investor.
As corporate America recovers, it is up to investors and fund managers who hold corporate bonds in their portfolios to choose what to do with them. In this challenging context, knowing the risks and uncertainties, along with making a strategic decision, will be crucial in minimizing losses and envisioning potential opportunities.
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