Opportunity or Shellshock for potential investor in current economy? Specialty chemical sector may deserve another look for risk/reward parameters when it comes to leveraged loans. For example: CE, NLC, and ROC.
Should we continue to keep an eye on these asset prices in the event they come under the same amount of pressure seen in the equity markets?
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4 comments:
A few companies like Nalco, Celanese, Rockwood may have defensive characteristics in their business but I am wondering if Ashland is in trouble. Would Ashland (ASH) be not breach its debt covenants if the general economy (and their businesses) continue to deteriorate? Isn’t approx 40% of Ashland’s earnings tied to the construction and transportation markets?
So, what do you think? Leveraged loan may not be so desirable because of the exorbitant cost of borrowing as well as potential lower cash flow, because of declining market, that may restrict regular debt servicing. But then how do you create attractive returns? PE houses successes hinged upon borrowing $3 to $4 for $1 of own. Only cutting cost may not be sufficient to attain high level of ROC/ROE that PE industry has enjoyed over the years. Moreover, when capacity is underutilized many cost cutting measures are not effective until and unless you go for extreme measures such as man power cutting/marketing cost cutting etc.
Ashland has a few good/resilient business such as Valvoline motor oil business and the Food and Pharma segment of their Aqualon division. They should do OK and extreme down economic condition would get many companies in trouble. Good question and thanks.
Skywalker, my comments were for folks who might want to invest in leveraged loans that are relatively liquid.
Next, I agree with you that it would be hard for PE to make money unless they go for extreme measures.
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