Payment-in-Kind Note Offerings Pick Up

Bubble-era financing method makes a comeback as concerns mount about corporate profits.

A type of financing that peaked before credit markets seized up four years ago is staging a comeback just as concern mounts that corporate profits are falling and the global economy is losing steam.

Offerings of $2.1 billion in the past 30 days of so-called payment-in-kind notes, which allow borrowers to pay interest with extra debt, account for more than a third of this year’s $6 billion of deals, according to data compiled by Bloomberg. Pharmaceutical Product Development Inc., a Wilmington, North Carolina-based contract research firm, sold $525 million of the notes yesterday.

Default Swaps

The cost of protecting corporate bonds from default in the U.S. rose. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses or to speculate on creditworthiness, climbed 0.5 basis point to a mid-price of 99 basis points, the highest since Sept. 28, according to prices compiled by Bloomberg.

PDVSA Bonds

In emerging markets, relative yields widened 2 basis points to 297 basis points, or 2.97 percentage points, according to JPMorgan’s EMBI Global index. The measure has fallen from this year’s high of 441 on Jan. 13.

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