When it comes to junk bonds, few are junkier than those issued by ravaged telecommunications major Western Union Corp, and the fix that companies get into when they try to dig themselves out of the pit is underlined by a problem for the Upper Saddle River, New Jersey company highlighted by the Wall Street Journal: in the refinancing for the company engineered by the company’s confident chairman, Bennett LeBow (the man behind the MAI Basic Four bid for Prime Computer Inc) Western Union needed to guarantee a $498m issue of senior secured notes by bolstering the burdensome coupon of 16.5% by making the rate resettable, so that if they fell below par, the interest rate would be increased enough to bring the price back to $101%; the bonds are currently trading at just 91 cents on the dollar, so that if you buy them now, the yield is 18.1%, and Western Union will have to up the coupon on the next due date, June 15, to considerably more than that to have any hope of bringing the price back to $101%; that means a further drain on the company’s distressed cash resources, leading to increased doubt that it will ever be able to repay the bonds, and further downward pressure on the price – an example of the kind of problem that will afflict over-geared companies high and lowly if a recession strikes in the US soon.
