The Frankenstein Fed Is Not Saving Everyone
Despite unprecedented actions by the Fed in the wake of COVID-19, high yield borrowers do not have a Fed liquidity back stop. Fundamental price discovery should continue for these businesses with respect to their balance sheet solvency (i.e. capital structure) and cash flow solvency (operating structure / business model). Over the long term, no amount of liquidity will save a broken business model, while a broken balance sheet will destroy a lot of capital and replace existing shareholders.
