21 July 2015 by lberuti
A couple of months ago, TOSH’s ( Toshiba Corp ) accounting issues were made public. Since then, things have gone from bad to worse for bondholders and the risk premium has been on the rise. Fraud will always be the big danger for credit investors and represents a (hopefully remote in most cases) risk they are hardly compensated for. So when a company reveals its books have been doctored and profit artificially inflated, it should expect no mercy. That’s why TOSH’s 5 year CDS left the 40bps-50bps band where it looked to belong indefinitely and embarked on a roller coaster ride. An independent investigation of the company’s books was launched and the results were released at the very end of last week, which led TOSH to announce that earnings will be corrected by 152Bln yen. This was actually less than numbers which circulated for a while, and despite news that rating agencies put it under review for downgrade, investors’ relief translated into a 25bps rally of the 5 year risk premium, which closed at 105bps.