When a firm has debt, conflicts of interest between shareholders (stockholders ) and bondholders ( Bondholders ) and this may motivate the former to take selfish strategies to try to maximize its profitability against the bondholders. These stressful situations between creditors of the company, because both are nothing more than that, are called agency costs can pull down the share price of the firm and basically fall into three types situations:
Incentives to take big risks: Sometimes a firm is near bankruptcy takes big financial risks because it has the feeling of playing with other people's money ... In fact, he has no choice: unless I get excited for those who have to provide liquidity support, it does not arrive in time to plug the hole that is taking the company ahead as literally "you have to wear the cute" and tend to "put " their money in projects that generate cash flow pintón ... and immediate, but do not forget that these scenes are usually the most at risk ... Right?
Incentives Reverse: The shareholders of a company with great potential to go bankrupt are reluctant to take investment in the company because they believe favor the bondholders at the expense of shareholders, for example, if the housing finance company 150,000 Euros to refurbish one of the production halls, it is possible that this money well spent, increase the present value of the building in, say, 200,000 € and add value to the company but the shareholder tend to wonder why you should use their own funds to improve the value of a building that a bank might be about to run ... If the improvement of the building had sufficient economic return and generate positive cash flows in a company leveraged those cash flows are generated, essentially and in this case, shareholder money, but the end benefit sharing between each other via dividend or coupon payment. why the investment strategy of a leveraged firm is totally different from other debt-free company and therefore the companies who bear some uncertainty tend to not renew fast enough productive assets.
Milk Company: A popular strategy for harm to bondholders is to pay dividends or distributions irregular extra benefits like stock options in times of financial stress, decreasing the value of the firm to the bondholders. This policy is known as the financial gossip "milking" . Legally there is no objection, it is the Governing Council who proposed to the General Board the amount of the dividend or distribution, but the ethical issue may not be clear: know that accounting is patient and will be neither the first nor the last case of a firm that must borrow money to pay a dividend and also, if the dividend is not justified, the firm reduces its value at the same time and hence pay the bondholder the embezzlement, the business is lost value but continues to pay the bond when the differential was worth more ...
In short, if you intend to invest in a company like bond or bondholder must be clear el tipo de projecto en el que se invierte, la política de retribución del accionista, la evolución y distribución de los cash flows libres de los últimos años y la urgencia con la que se aplican en captar a esos nuevos inversores porque... de Nuevas Rumasas... están los cementerios llenos.
Saludos!
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