Please forward this error screen to 64. What is a high yield bond? For a brief explainer on how the market works, check out this are high yield bonds a good investment, courtesy LCD and Paddy Hirsch. Paddy’s got a great video on how leveraged finance works.
The vast majority of loans are unambiguously private financing arrangements between issuers and lenders. Beyond the credit agreement there is a raft of ongoing correspondence between issuers and lenders that is made under confidentiality agreements, including quarterly or monthly financial disclosures, covenant compliance information, amendment and waiver requests, and financial projections, as well as plans for acquisitions or dispositions. These terms helped give the asset class some negative connotation in its more formative years. The asset class has matured into a large, liquid marketplace, however, which now attracts a broad swath of investors and multitudes of issuers. How big is the high yield bond market? The first real boom in the market was in the 1980s, however, when leveraged buyouts and other mergers appropriated high-yield bonds as a financing mechanism. While certainly there have been huge deals in market since that transaction, it’s still notable today as the 16th largest high-yield offering on record, according to LCD.
Since then, more companies have found acceptance with a growing pool of investors as the high-yield market developed. These days, though, the market also is a good deal of its own refinancing mechanism, with proceeds often paying off older bonds, bank loans and other debt. 287 billion in 2010, and via additional fallen angels, most notably Ford Motor Company and General Motors in 2005. Steady growth of the high-yield bond market saw only a few notable speed bumps. 2001, and of course most recently the subprime mortgage meltdown, credit crunch and financial crisis of 2008. 69 billion, the lowest in seven years, according to LCD. Companies with outstanding high-yield debt cover the spectrum of industry sectors and categories.
There are industrial manufacturers, media firms, energy explorers, homebuilders and even finance companies, to name a few. It’s how the issuers got there that breaks the high-yield universe into categories. The most frequent types of issuers are detailed below. As well, other capital-intensive businesses, such as oil prospecting, find investors in the high-yield bond market, as do cyclical businesses, such as chemical producers. These companies might find liquidity in the high-yield market and improve their balance sheets over time, for an eventual upgrade.
Of the 26 fallen angels, half are from the U. They do not have an operational history or balance sheet strong enough to achieve investment grade ratings. Investors weigh heavily on the business plan and pro forma financial prospects to evaluate prospects with these scenarios. Telecommunications network builds and casino construction projects are examples. Publisher of the National Enquirer American Media and auto-parts company Visteon are recent examples. Both were well received in market during the first half of 2011 and secured the exit financing despite past investor losses with the credits. This part of the market saw explosive growth in 2005-06, amid a buyout boom not seen since the late 1980s, then again in the 2005-2007 bubble, only to fizzle in the ensuing crisis.