According to an article today on business news site MarketWatch (which was reprinted elsewhere, including the Wall Street Journal), the bond market is holding the equivalent of a death watch over Michaels Stores and several other companies.
MarketWatch reports that bonds issued by Michaels are trading for only $.24 for every $1 of their mature value. The article says that when bonds are being traded at this much of a discount off their face value, it means that the market is anticipating that the company is quite possibly going to be in default on the bonds soon, a situation that usually leads to bankruptcy court.
Bondholders typically recover an average of $.45 per $1 of face value in bankruptcy court, according to MarketWatch’s experts. Low prices mean that the market is trying to build in a profit cushion in event of a bankruptcy filing by the bond issuing company.