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And NPR. Hey, everyone, Stacey Vanek Smith here. I'm the co-host of Planet Money's Daily Show, The Indicator. So about six months ago, we had the indicator, made an investment. It was a risky investment. Pretty much everybody told us we were going to lose our shirts, but we went for it anyway. And this investment took us on a pretty amazing journey into the world of energy markets, debt, pink slips and even death, transformation and rebirth.


It has been truly epic. We've devoted several episodes of the indicator to this journey. But today, on a very special Planet Money, we have combined them the whole journey into one episode. And it all started back in December with a surprise holiday surprise, actually, for my co-host, Cardiff Garcia. Here it is.


Cardiff Garcia, we've asked you to come into the studio today because there is a new member of team indicator. Oh, really? Yeah. Yeah, of course. You know, most of our team, our producers, Darrius Raffan and Linus Unscary and our editor Paddy Hirsch and this new mystery person about whom I was not consulted.


Yes, there is a new member of the team.


OK, so Cardiff, you might remember in an interview earlier this week, you told economist Tim Harford that you thought a junk bond would be the perfect gift for Christmas.


Yes. So we called up our editor, Paddy Hirsch, and said, look, can we get Cardiff a junk bond?


And Santa said her car has been a good boy this year.


And we said absolutely he had enough. I'm at the edge of my seat, by the way.


I said, let's try it. Planet Money has a special little slush fund for things just like this. And it's just sitting there gathering dust.


Go for it. So we decided that we were going to make a probably terrible, incredibly risky, but maybe, just maybe very lucrative investment, we were going to buy a junk bonds. Hello and welcome to Planet Money. A lot has happened since December and a lot has happened with our junk bond since December. Today on the show, we bring you a three part saga, our junk bond journey, starting with the purchase.


Buying a junk bond, we did not really know where to begin. So we called up one of our very favorite bond market experts, Marilyn Cohen. She is the founder of Envision Capital Management.


Hi, how are you? Top of the morning. It is. I'm doing good.


And we told her we want to buy a junk bond. She had some reservations. What is a terrible idea?




But why is it a bad idea? I mean, what is a junk bond?


Junk bond simply is a company that issues debt that is not investment grade investment grade.


So there are big ratings agencies that give companies grades based on their financial soundness.


So a company like Johnson and Johnson or Microsoft have a triple-A credit rating. They're in good financial shape. If you lend the money, they will almost certainly pay you back. But not everyone gets a triple-A if a company is struggling. If lending the money is a bit risky, the company might get downgraded to AAA at minus or a triple B and there is a credit ratings threshold. And once you fall below that, your bond, your debt is classified as junk junk.


Merlyn's is. The official term, by the way, is high yield bonds. The yield is the interest payment you get when you lend money to a company, when you invest in a bond and when companies dip into junk territory, they are considered really risky to lend money to their bonds are seen as risky. So the company issuing those bonds has to offer really high yields, really high interest rates on those bonds to attract investors to. Normally, the bond market is considered very safe and not very profitable.


The junk bond market is the exception to all this. It's risky and profitable. These are companies that are actually at risk of not paying investors back. This it's like junk bonds just means like risky bonds. This is like lending money to your flaky roommate.


Oh, yeah. There you go. Right now, Marilyn says the junk bond market is on fire.


Corporate debt is at an all time high. Interest rates have been low for so long that it's really cheap for companies to just borrow money for whatever reason.


So they have been for investors in bonds. This is not always great news because low interest rates mean you don't necessarily make much money on bonds.


So more investors have been creeping into riskier bonds, hoping to make some money like this like us. So we asked Marilyn how to buy a junk bond.


You'd have to set up a brokerage account and buy the bond, you know, online.


I'm opening up my fidelity account.


So we roped in producer Dyas Raffan and we said, Hey, don't you have an online brokerage account? Want to help us get credit for junk bond?


Dyas called Fidelity and they told him high yield bonds would be a little tricky to find. He specifically said that they hide the high yield bonds. They do like they don't hide them. They don't. They make it. You have to go searching for them because they don't want people to see these huge yields and be like, well, bonds are safe and this is paying 146 percent interest. Like, why wouldn't I just do that?


So to Fidelity's credit, they make it difficult to make bad decisions is very bad.


But we are determined to make sure we are going to make best to make bad decisions and corporate high yield.


There's currently 1264 Bonds available of the junk variety.


The first one on the list, Ford Motor, Ford Motor Junk Bonds, high yield. So this one, it costs a thousand dollars for one of them.


OK, that's probably and you have to buy a minimum of 200. That's a little rich if you have two hundred thousand dollars. You OK? We've got a nice buy, like lowest price with the lowest price. All right.


So here's here's a bond issued by a company called Hornbeck Offshore Services. The offshore services oil. I assume it's oil, right? Yeah. Yeah.


So just to show you how cheap and junk this bond is, if it actually gets to maturity, which seems not likely, these bonds yield one hundred and forty six point seven percent.


OK, to put that in perspective, what period over a year, year, like a year, year and change from now?


To give you a frame of reference, a twelve month treasury is yielding a one point five percent.


So one point five percent versus one hundred and forty six percent. Nice.


OK, I mean, you know, there is like a good side to junk.


Good yield for sure. So these bonds are two hundred and eighty six dollars and fifty cents. OK, and a minimum of two. So that would be six hundred dollars. Yeah. Just a little under six hundred dollars. That's the cheapest one. Yeah.


I think that the bond industry might be for rich people it's looking this way. It's like I feel like we could buy stocks for Wheelus. I know we could go buy penny stocks by buying stocks, but it looks like we're going with Hornback.


Looks like we're going on. Sure, yeah, we got the order all lined up, OK, so as to say let's read it off.


So we got two bonds from Hornbeck Offshore Services Maturity Date, March 1st, 2021. It's going to cost us 612 dollars and twenty eight cents. All right.


Oh, I'm coming over. It might go place order processing. Thank you.


Your order has been placed. All right, we are the proud owner, Jeff, on how I don't know how to. How do you feel? I'm getting a little bit of a rush. I've never thought about this before either. We want to we have to bond.


I know. And we need it. I feel like we need to name this bond.


So we call Hornbeck Offshore Services.


Who? Becky. Oh, I like Becky. Oh, Becky.


With the good. You better come back with the good. Becky, with the good yields so good, that high junk grade, you know, Becky, with the good the good yields.


OK, well, we are the producers of Bonds for Hornbeck Offshore Services. And now just one thing is left.


We have to give it to Cardiff. We have to give it to Cardiff.


OK, so you've handed me, Stacey, this this blue folder. All right. It's got Bozz on it. I'm going to rip these off.


This is a packet of information about the bond and articles about the company.


And also because it is an oil drilling company, fossil fuels oil.


We decided that Becky would best be represented as a dinosaur because oil comes from dinosaurs, fossil fuels.


So here is Becky, the little pink dinosaur, Becky, with the good, you know, team indicator on the junk bonds to junk bonds.


Christmas did indeed come early. So what do you think of your very exciting guys?


So you like it? Yes, it's awesome.


So how's it feel to be in the junk business? It's about time.


About time.


After the break, we get to know, Becky. This message comes from NPR sponsor FM Global, your commercial property insurance partners at FM Global have a different approach to keeping your business resilient because in the business world, resilience is being redefined today. Resilience means navigating business risk and individual complexities to make sure nothing can stop your business from moving forward with firm global as your commercial property insurance partner. Resilience is a choice. Make your business more resilient at firm global dotcom.


I'm Lisa Hagan, and I'm Chris Axelle. We're the hosts of No Compromise, NPR's new podcast exploring one family's mission to reconstruct America using two powerful tools, guns and Facebook.


New episodes drop every Tuesday. Join us for the No Compromise podcast from NPR. Just how risky was our investment in Becky? Well, a couple of months after we made this purchase, we called Clear Boston to ask.


I was walking down the street and you said, oh, we bought Hornback. And I audibly gasped.


Claire covers the bond market for Bloomberg.


Hornback is an extremely risky company. I spent a lot of time looking at these companies. And you guys didn't just pick, you know, like a higher quality junk bond, a higher quality. We know how to pick them.


I know. Claire says the junk bond market is a pretty big and varied place and not all junk bonds are created equal.


So there are three basic tiers.


We mentioned company credit ratings, AAA, AAA, single will be, etc. These are all desirable ratings for a company.


These are so-called investment grade ratings. It's a lot like a person's credit rating. If you're below triple B, though, you're now in junk bond territory like our bond.


The first year is double B. That is what we would call the high quality junk. You know, no one is worried about them not being able to pay back their bonds.


For instance, some of Ford Motors bonds are in that category. Also, J.C. Penney and Twitter and a record number of U.S. companies are issuing junk bonds.


Now, Claire says companies have started borrowing unprecedented amounts of money and using it to buy up other companies and to expand their operations and do all kinds of things. And why not? The money's cheap, but all that debt will bring your credit rating down. And that's why so many big, stable companies are in the junk category right now.


And then sort of the biggest part of the junk market is sort of that single B range. So call it the middle, you know. And so that's kind of what people consider to be traditional junk. So, you know, a little riskier companies like Bethlehem Steel, Revlon Ueber, a lot of companies that are still considered to be solid companies, just maybe having some cash flow problems.


And then the lowest here is we'll see. That's where we bought this. Tell me about this lowest here.


These are companies that definitely you could think about potentially running into trouble and not being able to pay their obligations back, like maybe going bankrupt or something like that.


Even in the best of times, investors are a little sort of wary of really loading up on traboulsi debt.


Hornbeck Offshore Services is in that lowest tier. Of course, that's where we invested. HORNBACK The company is based in Covington, Louisiana, a little city right near the Gulf Coast. Hornbeck was founded in 1997 by Todd Hornbeck and he is still the company's CEO. Hornbeck has about a thousand employees and it owns a fleet of boats that it hires out to supply people and equipment to offshore drilling sites.


Now, we tried to call Hornbeck a bunch of times, but yeah, that was the closest thing we got to respond. OK, so we've established it.


Hornbeck's debt is in the lowest level of junk right now. Claire Boston says actually a lot of oil companies are in that situation because low oil prices have pushed a lot of these companies into troubled territory, but especially companies like Hornbeck.


Not only is it energy, which is kind of an out of favor sector right now, it is the most out of favor of the out of favors. How come it is in offshore drilling services company and offshore drilling is basically the category of the market where energy companies are exploring for oil, not, you know, in the ground or in the swamp, you know, in the U.S., but deep underwater and super expensive.


Exactly. And so those companies need the highest oil prices to make money. And so I talked to a lot of investors for my job. And I have investors that say, oh, you know, like we think parts of energy are OK. But right now, very few of them are willing to take a risk on offshore.


Five years ago, Sheriff Hornbeck, stock cost about 23 bucks. Right now, it's around 60 cents a share. In fact, right after we bought our bonds, Hornbeck was suspended from trading on the New York Stock Exchange because its share price had dropped solo.


David Deckelbaum is the managing director of equity research at the investment bank Cowen and Company.


Stacey, you called him up to figure out what this would mean for us, for our investment in Hornbeck? McCormicks had a rough time.


I think they're now trading in pink sheets. Is that right? That's right. Yeah. Sheets, that seems bad. That's like, OK, that's that's not what you want.


Yeah. Once you go pink, that's like the last color you're going to say. Yeah, well, that's depressing. Yes. Listen, good. David says Hornbeck just has a lot of debt and not many prospects for making money in the near future.


So do you think we'll get our money back when you when you acquire a distressed that instrument?


You know, I think it's no, you know, you can always but once you're involved in a distressed situation, it's a matter of negotiation.


And sometimes a company can be so down and out that they just elects to go bankrupt and wipe out all of their. Or wipe out all of their bonds. Oh, but, you know, keep in mind, like most of these companies are run by folks that want to stay employed but don't necessarily want to go bankrupt. So I think what you tend to happen is usually there's some sort of exchange and the current bondholders would have to agree on that.


And that is exactly what happened. We talked to David in February, and almost right after that, Hornbeck started doing something called an amend and extend on its debt. So our bond was supposed to mature in 2021.


That is when we would have gotten all of our money back, plus, of course, the 146 percent interest if we had it back.


Yeah, yeah. Now, Hornbeck is asking bondholders to wait until 2025 to cash out on those bonds.


In return, it's offering a better deal, which means we might actually make a little money on our bonds. I don't know, it seems like maybe right now that Balanda only applies to accredited investors, real investors, it's not actually clear right now if we qualify for it.


So unfair. Yeah, well, David Deckelbaum says Hornback is no doubt in serious talks with many of those other investors right now and asking them to approve this amend and extend deal. He says Hornback most definitely has a tangible. But we're going to keep trying them.


Next up, Becky meets a pandemic and our investment adventure takes a very surprising turn.


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OK, so everything you just heard that happened months ago, before the pandemic, before the economy tanked, so just last month we decided we should check on Becky and we called up Claire Boston, the bond expert from Bloomberg.


You know, way back when you did that, it was pre covid, but the company was already having some serious struggles and had started to do things that looked like perhaps it was going to file for bankruptcy.


Then, of course, like the world fell apart and covid happened. And we kind of forgot about that. Kind of did stop paying attention. Yes. And so now I have some updates for you. I checked in checking on Becky.


I had a feeling this day was coming. Yes.


OK, so first update. Hornback is bankrupt.


Yeah, that's very sad. I actually tried not to look up Hornback, but this news did come across my screen at one point. So I. I knew it. I just didn't want to know what it meant for us. So I've avoided looking too much into it.


I mean, you know, a lot of ways it's not that surprising. Over the last six months, thousands of U.S. companies have filed for bankruptcy. It has been a really brutal time.


Yeah. And I mean, Hornback, I remember, was struggling before the covid pandemic came along. I mean, it already couldn't pay its debts back then.


Yes. So Hornback declared 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, OK, please look into this for us. Tell us what happened to Becky.


So I am a nerd. I pulled the restructuring plan out of the bankruptcy documents and they actually love nerd so much. OK, yes.


Would they say give us all the. Did you like like do you want the good news or the bad news? Because actually I think it's it's actually mostly bad unfortunately.


OK, ok, ok. But but that means there is some good news. Yes. Yes. I love this glass is half full.


Cardiff Garcia that I mean this is one chance. Yes.


I am saying there's a chance. Exactly. OK, Stacey, I'm ready. Ah jump on Becky. Hit me. What has happened to it. OK, so 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 the good news and bad news.


OK, so you guys are going to get about five dollars back.


Oh, OK. Really, for both bonds, five dollars, both funds, five dollars.


The good news is that it's not nothing. So the good news is that we are getting in a bad back. The bad news is that we're getting five. Yes. So apparently it's actually less than five dollars. It's more like three dollars. But Claire was like feeling generous and so she rounded up for us.


Much appreciated. So you're saying our two bonds that we paid six hundred dollars for are now worth about rounded up five bucks or so? Yeah. Now. OK, we just a follow up question is why did we get so little? Where did our five hundred and ninety five dollars go?


That is an excellent question. And I asked earlier about this and so she said the bond market just like a dark and complicated place, and there are a bunch of different kinds of bonds. And so in the case of bankruptcy, she says, all of the bond holders, all the people company owes money to, they get in this kind of line to get their money back.


But what happened to you and the reason that you guys are getting so little is that you're sitting kind of back in the line.


So if you can think of it like boarding an airplane, first up, you know, you have the people with small children, active military, those guys, super premium bondholders, they get a hundred percent of their money back. Then you've got like the platinum members, they got about 88 percent of their money back then. Way, way, way, way, way down the list.


You guys, general boarding and you're getting half a percent. Yeah. I mean, OK, so remember, though, the potential payoff here was really high. One hundred and forty six percent. We would have more than doubled our money if Hornbeck had pulled through and had not gone bankrupt. But of course that is the dark side of junk, which is that if a company goes under junk, bond holders are really far back in the line. You lose your shirt and we lost our shirts.


Gloucestershire, Becky, our our six hundred dollar pair of bonds is now worth roughly a cup of coffee.


There is a twist, though, Cardiff. OK, Becky, it's not actually a bond anymore.


I do tell.


OK, so it's a little bit of a tale, so settle in. So remember, Hornbeck went bankrupt back in May, right? Yeah. 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.


Yeah, no, that's a fair way to think about bankruptcy. Any time that a bankruptcy occurs, it almost always means significant layoffs, store closings. That being said, you know, Hornback plans to emerge from bankruptcy.


They'll still exist or they will. They do. Yes. Yes. OK, so here's the skinny Hornback declared bankruptcy. It was able to shed more than a billion dollars in debt and it's going to get back to business.


Oh, OK. All right. Yeah, yeah. GIBBS Yeah. OK, so what does that mean for a little junk bond? Well, our little junk bond, Becky, died. She is no more. She entered, you know, the chrysalis of bankruptcy and she emerged a stock. Oh, great. So we own stock in Hornback.


We own stock in the newly emerged from bankruptcy Hornbeck to point.


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. Fine, fine. One of them that I came up with, Phoebe, hear me out because Becky died, rose like a phoenix from the ashes. And so Phoenix. Becky. Phoebe Yeah. That's why we have Becky 2.0 re Becky.


Uh. I like Phoebe, like I believe we can have listeners vote on this on Twitter, so it's like help us out. Let's do it. All right, we're on. So we did indeed have listeners vote, put the call it on Twitter a couple of weeks ago, and the people have spoken our new bond turned stock zom, Becky, to keep following these zom Becky Soga, please subscribe to the indicator podcast.


It is always ten minutes or less each weekday. This episode was produced by Innocent's Gyuri, Doris Raffone, Nick Fountain and Lisa Yagur. The indicator is edited by Paddy Hirsch. I'm Stacey Vanek Smith. And I'm Cardiff Garcia and this is NPR. Thanks for listening.