Since the president began lobbying on the interest rate issue in April, both Democrats and Republicans have said they want to keep the interest at the lower rate.
Judge Drain's ruling on the cramdown interest rate issue caused a stir among restructuring professionals on both sides of the debtor/creditor aisle as it opened the door for expanded strategies by debtors (oftentimes in concert with junior creditors) to cramdown the claims of secured lenders with long-term replacement notes at below-market rates.
In addition to the cramdown interest rate issue, Judge Drain also ruled with respect to the following issues: (1) the appropriate construction of a make-whole provision that did not expressly require payment of a premium when the debt was accelerated, and (2) the scope of a contractual subordination provision.
With little economic news to drive them and the interest rate issue settled for the time being, investors concentrated on specific deals, many of which were announced in the tech sector.
But the interest rate issue affects only a relatively small group of students.
Let's fix this interest rate issue, and build momentum over the coming months to discuss broader student loan and college cost reform, so that students aren't locked out of an education that is increasingly becoming the only path to financial security in America.
(See: "China's Black Tuesday Darkens World Stock Markets") Interest-rate issues played a role at that time as well, but it was an increase by the Bank of Japan, which did not seem to be related to events in China but did raise questions about speculators who were borrowing at low rates in Tokyo and reinvesting in markets elsewhere.
While the Fed has assisted the markets by injecting cash into the national banking system– on Thursday, it poured another $12 billion into the pool– it has not budged on the interest-rate issue, even as financial institutions sound S.O.S. calls.
Take into consideration the inflation rate (historically 3% or 4% per year), the quality (lack of riskiness) of the bond (a higher rate of return is required to compensate for more risky issues), the current market interest rate of issues of similar quality, and the rates of return offered by alternative investments.
And for companies that see promising opportunities, the booming stock market and low interest rates mean that capital is readily available on favorable terms already; it's not clear why a company would invest in a new factory, for example, using repatriated overseas profits but not use money borrowed at a low interest rate by issuing bonds.
U.S. stocks fell this morning, despite the encouraging earnings season, over investors' concerns about rising interest rates and issues of global security.
