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Comment by kelnos | Hacker News Reader

Corporate bonds are... interesting... now. I've been looking at airline bonds that mature in the next 6 to 18 months. Quite a few of them have yields-to-maturity north of 7%. I figure airline bonds aren't super risky (at least for the majors in the US), since the US gov't will prop them up until the end of time. Some of these aren't rated investment-grade anymore, but I don't particularly trust the ratings to be all that useful at this time.

Airline stocks probably have a bigger upside, but they're quite a bit riskier. Bondholders do get priority in a bankruptcy, if it comes to that (though I'd doubt it).

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Just because you believe the government won't let the airlines go away doesn't ensure that the bonds are safe. Sometimes keeping a company in business involves a restructuring such that those bonds won't pay out as you're expecting.

Genuine question: if a company didn't pay out on its bond, that's a default; how can it default without going bankrupt?

I believe what you’re missing here is a “Chapter 11 Bankruptcy”, as opposed to a “Chapter 7 Bankruptcy”.

Chapter 11 means the business keeps running, but the owners lose their money, Chapter 7 is what most of the world considers to be a bankruptcy / going bust / liquidation. Uncle Sam probably doesn’t care if Delta does a Chapter 11, as long as the planes keep flying.

I guarantee that Uncle Sam doesn't care if Delta files chapter 11.

https://money.cnn.com/2005/09/14/news/fortune500/delta/

holy shit. And there was a guy here who bought delta bonds, saying he would make an easy 7% by the end of the year.

sometimes bond holders are given the option to convert the debt into equity (at probably pennies to the dollar, which is a steep discount and therefore, a good deal) - that's what restructuring means.

Going bankrupt means lenders and shareholders are wiped out but the company can be restructured and continue operating.

Like United Airlines.

I suspect many airlines will go bust before this is done. Not all of them. A few are going to come back strong. You could diversify, buy JETS (airline ETF.)

> many airlines will go bust before this is done

My bet is there will be a large number of hard hit industries (e.g. airlines, cruise lines, hotels, car rental companies) which will see widespread ch 11 and bankruptcies. Makes sense if then they can reemerge after eliminating a good chunk of debt and also roll back labour agreements. Likely a bunch of consolidation/merges on their way as a result too.

Should see the ball start rolling after the mid-year results come out early July.

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