Serena Ng says that Bear Stearns paid
"a heavy price" when it issued $2.25 billion of five-year bonds
at 245bp over Treasuries on Monday. She doesn’t actually do the math, so I’ll
do it for you: the typical single-A corporate bond yields 125bp over, so let’s
say that Bear Stearns was forced to pay a premium of 120bp. On $2.25 billion
of bonds, that works out to $27 million per year, or an extra $135 million in
total. Which, weirdly enough, is more or less the same amount of money that
Jimmy Cayne was planning on paying Warren Spector
over that time.
More interesting to me is the fact that the new bonds priced 50bp wide to Bear’s
existing 2012 debt. That’s a big spread, and that’s the datapoint which really
encapsulates the severity of the present credit crunch. If the market was remotely
efficient, the two 2012 bonds would trade pretty much on top of each other.
But when a bond window shuts, it shuts, and a would-be issuer is forced to pay
through the nose if investors are going to be enticed to spend their money in
the primary rather than the secondary market. Which I’m sure made for some difficult
conversations between Bear’s syndicate desk and its buy-side clients.