Topic: How To Invest

For centuries bonds have ranked first before unsecured creditors and equity holders in the event of a bankruptcy. Now the Obama administration and the U.S. Supreme Court seem intent on changing the legal status of bonds, whereby the contractual relationship will not be supported and bondholders may lose out. What is being done in Canada to prevent this virus from coming here? I am deeply concerned about this outrageous action and how it may affect the valuation of bonds in the future. What action can I expect from the Canadian investment community to get legal assurance that the rights of bondholders are protected in all circumstances and can never be taken away by any political party?

Article Excerpt

You are absolutely right in principle, and many investors share your concern. But for years, the bankruptcy courts have made a practice of what you might call “throwing a bone” to institutional shareholders (who are often pension funds) in any hotly contested or high-profile bankruptcy. They mainly do this to get these shareholders to agree to the terms of a bankruptcy plan. Otherwise, the litigation that follows can eat up a lot of whatever value is available for the bondholders. Incidentally, that’s why we rarely, if ever, recommend buying corporate bonds. No doubt this practice has raised the cost of capital for many companies. That’s why we rarely, if ever, recommend buying corporate bonds. If you want to invest in a corporation, you might as well find one you really like, then buy its stock. stock. …