Real Mex misses interest payment

July 21, 2011

I have to say that I’m surprised how quickly things happen. My comments on the Real Mex bonds, which have been up for barely two days, seem sort of quaint now that the major ratings agencies have issued a cut on the grounds that the company has announced missing an interest payment. As I stated in my previous commentary, I was more or less sure that there would be default, bankruptcy, and restructuring, but I was not sure about the timing. Of course, my idea that there would be the “sweetener” of some extra coupons before the big D (default) is now out the window.

At any rate, the company’s historical free cash flow to the firm, if it can be maintained through this process (and companies in bankruptcy often surprise people with how well they can accomplish this feat), is likely to support the ultimate value of the bonds, and of course the cash interest . However, as things stand this value will probably be realized after a bankruptcy/restructuring workout and not before, and as I said before the price action in the meantime will be difficult to predict.

Much as I enjoy the opportunity to test my hypotheses, I am surprised to see a chance to test this one so soon. I will add that the bonds were trading at around par a little over a week ago, so it’s not just me who was surprised.

2 Responses to “Real Mex misses interest payment”

  1. Well they made the payment after all and we are back at par. Interesting!

  2. These bonds haven’t traded close to par since MAY….

Leave a Reply