Fed still on narrow path to soft landing
At the end of last year we were left confused by the capital market strategy of well-known real estate company AroundTown, which announced in late November that it would not be calling one of its corporate hybrid bonds at its first call date later this month, and then floated the idea of deferring coupons on all of its outstanding hybrids as it grapples with deteriorating market conditions. In our view, neither of these actions was justified by the firm’s reported results, nor did they represent the sort of bondholder treatment you might expect from a listed investment grade issuer.
The initial market response was a decline in the prices of its hybrid bonds; AroundTown’s shorter dated hybrid (January 20 call) declined by around 25 points over the course of December, while its longer dated hybrid (April 2026 call) dropped by around 18 points.
On Wednesday morning, AroundTown announced a tender for two senior unsecured bonds due in 2025.
The two bonds in question also suffered price drops following the company’s November announcement. The 1% 2025 bond, which is being tendered for at a minimum price of 84.75, declined from a price of 88 at the end of November to around 81.50 at the end of December. The 0.625% 2025 bond, meanwhile, is being tendered for at a minimum price of 80.75 having declined from 84 to around 78. The tender process is organised as a Dutch auction, so rather than the issuer setting a price for all tendered bonds, bondholders are invited to submit bonds at their requested prices (they can be above the minimum price) and the issuer can pick and choose the bids it accepts.
One might characterise AroundTown’s approach as rather opportunistic given the decline in its bond prices. However, as the decline in price was driven by AroundTown’s own poor communication and lack of clear capital market strategy, this tender is another sign of its lack of respect towards bondholders and a red flag for corporate governance, making the name currently uninvestible from our perspective.