Pro Take: Rate Hikes Fuel Bondholders’ Canadian Pacific Trade

Canadian Pacific Railway Ltd. has emerged as an unlikely target for a few distressed-debt investors. It wasn’t because of the railroad operator’s creditworthiness, but rather because rising interest rates pummeled the value of some of its bonds in recent months ahead of its roughly $30 billion acquisition of U.S. rival Kansas City Southern.

Canadian Pacific sold bonds in December 2021 to finance the acquisition, including $2.4 billion in notes due 2031 and 2041, with coupons of 2.45% and 3%, respectively. Due to the rise…

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