The Indicator from Planet Money - Becky, We Hardly Knew Ye

We bought a junk bond back in December. Then COVID-19 sent the economy into a tailspin, and the company that issued the junk bond declared bankruptcy. But that wasn't the end of the story.

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This is the indicator from Planet Money. I'm Stacey Vanek Smith, and I'm Carlos Garcia back in December, which of course seems like a lifetime ago. We had the indicator made an investment. You might remember that's my Christmas present present. We bought a junk bond only you would want to jump on it jump on it. So I jump on it like a little loan that you give a company if you buy a bond your essential lending the company or the government. You can buy a Government Bond to your lending the money and eventually you get paid back with some interest some little extra and how much interest well that kind of depends. So if the company is in great financial shape, then they don't have to pay too much interest because there is not that much real risk to letting that company money. But if the company is a little shaky not doing too great, then they have to pay more interest because lending them money is risky is sort of like lending money to you know your

Flaky friend or something where it's like a flaky friend who can you spot me for dinner? If you're going to give that person money you kind of want to reward for taking on that risk. So yeah at the junk pot so when companies have a lot of debt or are in shaky Financial shape, they have to pay a lot of interest on their bonds and those bonds are called high yield bonds or in the more fun term jump on ya like your junk friends so to speak. Oh, yeah. Well, there's bad news about junk bonds though, which is that they are riskier than other kinds of bonds and the company that you are less money to is not considered a super safe bet the good news though. They pay a lot of interest also good news there relatively affordable Bonds in general are pretty expensive like thousands of dollars per bonds big money the indicator we are on a budget so we bought the cheapest bond that we could find it was for a company called Hornbeck offshore Services This Is Us family run company out of

Louisiana and porum back is an oil services company is all these big ships and they bring supplies and equipment to drilling rigs way out in the ocean. So we bought two bonds the absolute minimum total cost of about $600. We called the bond Becky with the good deal because the interest rate on a bond was huge also Beyonce and just to give you some context a Government Bond back the time back in December at treasury note the yield as they call. It would be about 1% 1% little over 1% the yield on Becky 146% That is a good yield. Oh, yeah, we bought a bond and we waited for the money to roll in the sweet sweet money or not. When I first heard that you purchased Hornbeck. I was honestly kind of scared for you. This is Claire, Boston.

Rocket for Bloomberg, you know way back when you did that. It was pre covid at the company was already having some serious struggles and I started to do things that looked like perhaps it was going to file for bankruptcy. And of course like the world fell apart included happened and we kind of forgot about that kind of just stopped paying attention. And so now I have some updates for you. I checked in on Becky. I had a feeling this day was coming. So first update Hornbeck is bankrupt. Yeah. That's very sad. I actually tried not to look up Hornbeck. But this new did come across my screen at 1 points. Alright, I knew it. I just didn't want to know what it meant for us. So I've I've avoided looking too much into it. I mean thousands of us companies that filed for bankruptcy. It has been a really brutal time and I mean Hornbeck I remember was struggling before Dakota tendon. It came along. I mean it already couldn't pay its debts back then. Yes.

Going back to clear bankruptcy, but you know, even if a company declares bankruptcy, if you have a bond, you will typically get paid back in the bankruptcy settlement right at least in part. So, you know, we're not necessarily in terrible shape. I asked Claire. Okay, please look into this for us. Tell us what happened to Becky. So are you a nerd I pulled the restructuring plan out of the bankruptcy documents. Do not marry so much. Okay. Yes. What does he give us all the DC? Do you want the good news or the bad news? Cuz actually I think it's it's actually mostly bad. Unfortunately is there is some good. Yes. Yes. I love this glass is half-full Cardiff Garcia that I needed. This is what I am saying. There's a chance exactly forthcoming about for the brake to Moseley bad, but not entirely bad news what became of Hornbeck offshore services and what has become of Becky.

Support for this podcast in the following message come from Google from updating their hours to adding takeout and delivery information small businesses around the country are using free Google tools to adapt learn how to small business. This message comes from NPR sponsor Microsoft. The world has changed and Microsoft teams is there to help us stay connected teams is the safe and secure way to chat meet call and collaborate to learn more visit teams. Okay, Stacy, I'm ready are junk bond Becky hit me what has happened to it. We know a few things the company that issued the bond Hornbeck offshore Services declared bankruptcy back in May clear Boston who covers the bond market for Bloomberg said good news and bad news. So you guys are going to get about $5 stocks.

Oh, okay, really for both bonds $5 funds $5 a week. The good news is that it's not nothing. So the yahoos is that we are getting Anna back. The bad news is actually less than $5. It's more like $3, but Claire was like feeling generous and so she ran it up for much appreciated that we paid $600 for five bucks or so. Okay. We just a follow-up question is why did we get so little weird or $595 go that is an excellent question and I asked her about this and though she said the market just like a dark and complicated place and there were a bunch of different kinds of bonds and so in the case of bankruptcy, she says all of the bondholders all the people company of his money to they get in this kind of line to get there.

Play back. But what happened to you in the reason that you guys are getting so little is that you're sitting kind of back in the line. So you can think of it like boarding an airplane for stepping to give the people with small children active military those guys super premium Bond holders to get 100% of their money back. Then you got like the Platinum members they got about 88% of their money back. Then we will wait on the list you guys General boarding percent. Yeah. I mean, okay. So remember though the potential payoff here was really high hundred and 46% We would have more than doubled our money in Hornbeck and pull through and had not gone bankrupt. But of course that is the Dark Side of junk which is it if a company goes under junk bond holders are really far back in the line, you lose your shirt and we lost our Surety bonds is now worth roughly a cup of coffee. There is a Twist folk artists, okay.

Becky it's not actually a bond anymore you tell okay. So it's a little bit of a tale so settle in so remember Hornbeck went bankrupt reckon, they right. So when I heard that I assumed that it was just going out of business forever. Actually though like this makes me sad. I mean, I mean, this is like, I think they employed like a thousand people that's a fair way to think about bankruptcy any time that a bankruptcy records it almost always means significantly off store closing that being said no Hornbeck bankruptcy. They'll still exist more than a billion dollars in debt and going to get back to business. Oh, okay. Alright. Yeah, I got it. Yeah. So what does that mean for a little junk bond?

Well, our little jump on Becky died. She is no more. She answered, you know, the Chrysalis of bankruptcy and she emerged a stuck a great so we own stock in Hornbeck. We own stock in the newly emerged from bankruptcy or back 2.0. So Becky went from being Becky with the good yield to Becky with the possible future upside appreciation. I don't know something like that. I think that's a very exciting option. I feel like we should explore a few more. I have some ideas one of them that I came up with Phoebe hear me out because Becky died Rose Like a Phoenix From the Ashes and snow Phoenix Becky Phoebe, Rebecca.

I like Phoebe play. Okay, I do like we get a blister to go down this on Twitter. It's like help us out. Alright, we're on this episode of the indicator was produced by Nick Fountain back checked by Courtney Cronin. Our editor is Patty Hearst and the indicator is a production of NPR.
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