Kestava Retail bonds trade at a 450 basis point spread with leverage of 5x; Rodhan Ports bonds trade at 300 basis points with leverage of 3x. Which bond pays more per turn of leverage, and what else would you check before calling one cheap?

Rodhan pays more per turn of leverage, about 100 basis points against Kestava's 90, even though its spread is lower. But spread per turn is only a first screen. A turn of leverage on port concessions with contracted cash flows is worth more than a turn on a retailer carrying store leases. On illustrative default and loss assumptions, the two bonds pay about the same after expected losses, and Rodhan far more per turn.

Normalise, the way you would compare two rents by price per square foot rather than by the monthly cheque. Dividing spread by leverage gives the price the market pays you for each turn of debt you are lending into: 450 over 5 is 90 basis points for Kestava and 300 over 3 is 100 for Rodhan. On this screen the junior analyst has it backwards: the 150 basis points of extra spread on Kestava comes with two extra turns of leverage, and it pays less for each of them.

Leverage counts debt against EBITDA, but EBITDA is not equally reliable. Rodhan's EBITDA comes from long concessions and contracted volumes on hard assets; Kestava's depends on fashion cycles and footfall, and it also carries store leases that behave like debt but may not be in the leverage figure. Check that both leverage numbers treat leases the same way: if Kestava's excludes them, its true leverage is higher and its spread per turn lower still. Then ask what lenders recover in default. A port's assets can be sold or run by someone else; a retailer's value is mostly stock and a brand, and its loss given defaultThe share of a loan or bond that lenders lose if the borrower defaults, after recoveries from the assets. is higher.

Put illustrative numbers on it to see the effect. Suppose Kestava has a 3.0% annual chance of default with 70% lost if it does, and Rodhan a 1.5% chance with 35% lost. Expected loss is then about 210 basis points a year for Kestava and 52.5 for Rodhan, so after expected losses the two spreads are almost the same, 240 against 247.5 basis points. Per turn, Rodhan now pays about 82 against Kestava's 48. These probabilities are assumptions for the exercise; in practice you would take them from rating histories and your own recovery analysis.

Cash flow stability, covenant protection, maturity profile and liquidity of the bonds. A spread is cheap only relative to the risk it pays for, so the conclusion is conditional: Rodhan looks better value per unit of risk unless something specific, a concession renewal or a single-customer terminal, makes its cash flows less secure than they look. Kestava could still be the better trade if you have a view the market does not, such as a sale-and-leaseback that will cut its debt.