Posted By
TRACY SCHNEITER
on
2/22/2010 1:57 PM
Honda recently went out to the financial markets and sold bonds backed by auto-loan payments. Doesn’t sound so unusual, does it? Well in the “old days” the answer would be no but in today’s tight and jittery financial situation, finding investors to even consider anything in the automotive world is quite a feat. Here’s why Honda’s bonds are a great sign of things starting to come around (even just a bit)…
Almost all of the bonds were sold OUTSIDE of the Federal Government’s TALF (Term Asset-Backed Securities Loan Facility). Long name for a program dating back to 2008 that provides federal funds so investors can borrow at very low interest rates. The program came into existence when the banks literally shut their doors to loaning any money to the investment community which stopped the flow of commerce around the country.
Without selling bonds (where investors assume some risk in exchange for an agreed-upon profit return) companies can’t invest in new capital equipment to design new cars, build new manufacturing lines, update facilities, etc. When companies go bankrupt, bondholders rarely get paid anything for their original investments - - so the more bankruptcies and negative business growth environment, the more skittish bond buyers (investors) become.
So the fact that Honda could attract enough investors out in the regular market while only relying on the TALF program for a portion of their offering is a darn good sign that people are starting to feel that cars (and car loans) are a solid investment again.
0 Response
to "Honda Sells Bonds - Why Should You Care?"