Herb's Hotline: The Value of Bond Analysts

Hotline hoopla: Now, let's see what spin the Street puts on the report from Lehman Brothers convertible bond analyst Ravi Suria. (A very gutsy report, at that, considering the firm's stock analyst, Holly Becker, has a buy on Amazon.com (AMZN Quote). But, hey, memo to Lehman: Use it to show just how independent your analysts really are!) Any bets that the stock analysts focus on the company's ability to narrow its losses, rather than its ability to raise cash? I'd take that bet because that's all the stock side is ever interested in. (Or mostly interested in!)

But for highly leveraged companies (and as you can see in my Extra, Amazon sets new parameters for high) more important than earnings is the balance sheet and cash flow and a deep-in-hock company's ability to cover its debt. That's why you should watch the red flags being raised by a good bond analyst any day over the green flags being raised by the stock side ...

Amazon isn't the only company in Suria's sights. Overlooked in the Amazon swirl was that he also stabbed his knife into the recent convertible preferred stock deal from eToys (ETYS Quote), recently mentioned in this column. "We believe that the structure of the convertible preferred stock clearly indicates the desperate need for financing that the company faces and the total lack of reasonable financing alternatives," he wrote. "This type of conversion feature, occasionally called the exploding put or death spiral, is usually among the most expensive forms of financing that a company can have." ...