High-yield bond market facing challenges

Kalahari Resorts has now worked out a local fee structure for the bonds it plans to issue through Fredericksburg’s Economic Development Authority, but an article in today’s Wall Street Journal hints at the difficulties the company could face in actually selling the bonds.

The WSJ article shows that the high-yield bond market has been hit hard by the recent turmoil brought about by fears over European sovereign-debt defaults. That fear has increased the interest rates that investors demand to buy high-yielding debt, which makes borrowing more expensive. Several companies have delayed their bond sales of late in the face of these conditions, and the amount of new bonds issued has gone way down. The market is still open for borrowers, but the terms aren’t as attractive as they were even a few weeks ago.

Kalahari plans to sell about $30 million of tax-exempt bonds and $240 million of taxable bonds to finance its water park, hotel and conference center in Fredericksburg’s Celebrate Virginia. The company says it expects interest rates of about 8 percent on the tax-exempts and 11 percent on the taxables, but those rates could change based on the demands of investors. Kalahari has said it hopes to sell the bonds in October or November.

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