Gentiva's suitors must factor in recent market volatility as they face the prospect of increased interest rates. Will Kindred and the unnamed White Knight rush their due diligence, hoping to lock in any new debt at dirt cheap rates? A financial expert noted:
As companies pay more in interest on borrowed money corporate earnings can drop reducing the stock price. Companies vary as to how sensitive they are to this risk.
Gentiva is already bloated with debt, much of it recently refinanced at low rates as part of the Harden acquisition. The bigger the corporate mortgage the less money the company has to spend on other things, like employee salaries and benefits. These have been low on the priority list for years.
Gentiva will be sold, unless the credit market collapses. The question is who'll buy, how much they'll borrow and at what rates?
The move comes amid rising demand this year for the riskiest corporate bonds from investors frustrated by low interest rates on historically safer investments.
There have been signs lately, however, that the rally may be waning. Prices on bonds issued by lower-rated U.S. companies tumbled last week to a three-month low, according to a Bank of America Merrill Lynch index. Bond yields rise when their prices fall.
Credit market instability could impact who wins Gentiva (if anyone).
Anonymous (from Gentiva)