Research is absolutely key for investors looking at buying into a bond issue. As Brad Meiers, a corporate debt specialist, told Financial Pipeline co-editor Romina Maurino, information is needed on a number of things, including the company’s ability to service the debt.
RM: When investors are looking at whether or not to buy into a new issue of bonds, what is it that they rely on the most?
BM: A lot of them have, the more sophisticated have, a team of internal research people, that’s generally what they rely on and then they do their own fundamental work as to the creditworthiness. They look at the balance sheet, they look at their ability to service the debt, they look at their ability to repay the debt, is the business going in the right direction? What does their cashflow look like? Is there an improving credit or a worsening credit? And really, that’s the fundamental work that they do, and then it really comes down to `OK, are they issuing the right amount of size that’s appropriate for the market and the right term and at the right price?’ – and that’s mainly done by the portfolio managers, but it’s also an important part to see if you’re being paid properly to assume the risk that you’re taking on that company. And the fundamental work is the first step in the process.