“NCAA,” adjective, an acronym for “no coupon at all.” Usage note: When one considers that Wall Street is full of people with fancy educations, it’s disheartening that most finance lingo is so dreadful; one expects more from all those Ivy League degrees. Yet one must give credit where it’s do and admit that finance blowhards really caught lightening in a bottle when they coined “NCAA”; it’s an an exquisite piece of lingo.
If you’re not fluent in bankerspeak, you’ll be confused when you first hear this neologism. You might naively think that a NCAA bond is one issued by the National Collegiate Athletic Association to pay the legal costs for the remarkable number of felons who are masquerading as college athletes. With annual revenues approaching $1 billion and about $630 million set aside for investment purposes, the NCAA probably won’t miss an interest payment anytime soon. On the other hand, American Eagle Energy Corp., an oil and gas producer that issued $175 million of 11% senior secured notes due 2019 less than seven months ago, has failed to make its first interest payment, which was due on March 1. The company now has what’s known in the high yield investing universe as a 30-day grace period to make the missed $9.6 million payment or trigger an event of default. If a default were to occur, all kinds of unsavory and untrustworthy distressed investors will materialize, like flies buzzing around roadkill, in the hopes of ransacking the company on the cheap at the expense of the beleaguered equity interests, whose shares (ticker AMZG) currently trade at 20 cents, thanks to a 50% drop in the price of US crude since July (the bonds were trading at about 32 cents on the dollar yesterday).
It should be noted that high yield bankers love it when their competition at another investment bank underwrites a NCAA bond. They relish the pure schadenfreude of knowing that a rival team of financiers sold a deal to investors that crapped out in a money-losing and reputation-destroying 1/10 of its expected lifetime. American Eagle basically just did the hip-hop-star equivalent of leasing a new Bentley and failing to make even the first monthly payment. Bankers not involved in this fiasco are having a good laugh about it while putting the finishing touches on their merger models at 12:30 a.m.
The portfolio manager (aka the “PM”) who was hoodwinked by the “juicy” 11% coupon when this turd dropped onto the market last summer has known for a while that he really “dropped the ball” on this one: The company stopped drilling in November and has been unable to borrow from its line of credit since December. But when some slick-talking salesman who didn’t know that the PM was “long and wrong” informed him that the American Eagle bonds were “NCAA,” that was his cue to finally call back that pushy headhunter because the PM’s days might be numbered.
This is a great piece with wonderful vocabulary! Correction: “give credit where it’s due.”