Deleveraged Floater

One of the most striking differences in the investment world is between the way prices for stocks and bonds are quoted. Stocks are quoted in decimals of dollars and cents and are pretty unambiguous. Bonds, on the other hand, are priced relative to benchmarks, which can change intraday, and due to the size of bond trades, a few basis points spread can become sizeable to a trader.

Corporate bonds comprise a significant portion of fixed income investments. Pricing of corporate bonds is usually quoted in basis points of margin added to yield quote of the nearest benchmark Treasury, or if specified, LIBOR maturity. A bond calculation is then input to arrive at a dollar price that both buyer and seller can agree upon to close the trade.

Floating coupon bonds take the benchmark reference model and apply it to the coupon pay out. In a deleveraged floater, a fraction of the benchmark is used, then added to the margin to arrive at the coupon for the upcoming due payment as of the trade date.

If you are familiar with the notorious Stratton Oakmont firm as depicted in the movie, The Wolf of Wall Street, it’s easy to see why con men would have a difficulty bilking investors on corporate bonds, and why stocks are an easier vehicle.

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Finance: What is MBO v LBO?17 Views

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Finance allah shmoop What is an m b o versus

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and lbo Okay let's Get their letters right first And

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n b o is a management buyout Ngos on their

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own aren't all that common But in a given company

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inside management might own same thirty percent of the stock

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They might partner with another investor who owns a twenty

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percent or more And then they might borrow say fifty

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percent in debt and take the company private fixit pivot

00:33

tweak live with bad quarters for a while without wall

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street yelling at him And then they might sell the

00:38

company cell or whatever Maybe take it public again will

00:41

The distinctive feature here is that the company is already

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in place Management is doing the deal and more often

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than not essentially all the net worth of the management

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will be in the company leveraged when the embryo is

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completed And that level of financial commitment really keeps the

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team focused Because if things don't work out when they

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lose everything your house their car in there Slinky collection

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All right next up we have an lbo which is

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a leveraged buyout and it just refers to the practice

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Of taking on debt to buy a company sometimes with

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same management sometimes with different players like an lbo is

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a bigger venn diagram set than the embryo thing Well

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in an lbo the same basic thing happens But in

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a whole bunch of cases management is tossed out The

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company wouldn't be quote vulnerable unquote to an lbo Had

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management done a good job and kept the company trading

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or valued at a high multiple where it would then

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be almost impossible to make the risk reward scenario workout

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in taking out a whole lot of debt to get

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company bought and then turned in the right direction Instead

01:44

new management in lbo is usually brought in and resembling

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moses noah and other biblical characters and their perceived greatness

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and there's a stone tablet with a new set of

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commandments Thou shalt be profitable or something like that Arguments

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are had at the board level and eventually either the

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lbo works and the company has taken public again or

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sold for a big price Or it isn't and wrath 00:02:06.63 --> [endTime] has had

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