Description
Book SynopsisExamine the high yield market for a clear understanding of this evolving asset class High Yield Debt is the one-stop resource for wealth advisors seeking an in-depth understanding of this misunderstood asset class. The high yield market provides a diverse opportunity set, including fixed and floating rate debt, high and low quality debt issues and both short- and long-term duration; but many fail to understand that not all high yield exposure is the same, and that different market segments and strategies work best at different points in the economic cycle. This guide addresses the confusion surrounding high yield debt. You''ll find the information you need to decide whether or not to buy in to a high yield fund, and how to evaluate the opportunities and risks without getting lost in the jargon.
The U.S. corporate high yield market is worth $2.4 trillionmore than the stock markets of most developed countries. Market growth has increased the number of funds with h
Table of Contents
Preface ix
Acknowledgments xv
About the Author xvii
Foreword xix
Chapter 1 Development of the High Yield Industry 1
1.1 What is High Yield Debt? 1
1.2 The Importance of Credit Ratings 3
1.3 The Origins of High Yield 5
1.4 Advent of the Leveraged Buyout 7
1.5 Junk Bonds 9
1.6 Market Maturation and Growth 11
1.7 High Yield Today 13
1.8 Summary 14
Chapter 2 High Yield Issuers 17
2.1 High Yield Issuers 17
2.2 Capital Structure Considerations 21
2.3 Choosing Between High Yield Bonds and Leveraged Loans 22
2.4 High Yield Issuers by Industry 25
2.5 Purpose of High Yield Debt 25
2.6 The Role of Investment Banks 28
2.7 The High Yield Capital Raising Process 30
2.8 Summary 32
Chapter 3 Buying High Yield Debt 33
3.1 Who Can Buy High Yield Bonds? 33
3.2 Who Can Buy Leveraged Loans? 35
3.3 Buyers of High Yield Debt 35
3.4 Investment Mandates Impact Volatility 37
3.5 Collateralized Loan Obligations (CLOs) 38
3.6 Implications of an OTC Market 42
3.7 Tracking High Yield Liquidity 44
3.8 Total Return Swaps and Margin Finance 45
3.9 Summary 48
Chapter 4 High Yield Financial Concepts 49
4.1 Key Economic Terms of High Yield Debt 49
4.2 High Yield Call Protection 50
4.3 Fixed Versus Floating Rate Debt 52
4.4 Bond Yields, the Risk-Free Rate, and Credit Spreads 54
4.5 More Advanced Yield and Spread Concepts 56
4.6 Common Issuer Metrics Tracked 58
4.7 Summary 61
Chapter 5 Debt Structures 63
5.1 Ranking and Subordination 63
5.2 Operating and Holding Companies 66
5.3 Leveraged Loan Structures 68
5.4 High Yield Bond Structures 72
5.5 Payment-in-Kind Debt 75
5.6 Ahydo 75
5.7 Summary 76
Chapter 6 Credit Agreements and Legal Considerations 77
6.1 Loan Credit Agreements and Bond Indentures 77
6.2 Roadmap to High Yield Documentation 79
6.3 Affirmative and Negative Covenants 81
6.4 Incurrence-Based Versus Maintenance Covenants 83
6.5 Covenant-Lite – What Does It Mean? 85
6.6 More Advanced Credit Agreement Provisions 86
6.7 Sacred Rights and Bankruptcy Resolution 91
6.8 Recent Legislation 93
6.9 Summary 95
Chapter 7 High Yield Asset Class Performance 97
7.1 Total Returns, Volatility, and the Sharpe Ratio 97
7.2 Comparative Asset Class Performance 99
7.3 Annual Performance Variations 100
7.4 High Yield Bond and Leveraged Loan Price Volatility 101
7.5 Returns by Ratings 103
7.6 Beta and Correlation Analysis 104
7.7 Interest Rate Risk 106
7.8 Defaults and Recoveries 108
7.9 Summary 109
Chapter 8 Assessing the Market Opportunity 113
8.1 Sources of Market Information 113
8.2 How to Evaluate High Yield Credit Spreads 115
8.3 Putting Historical Credit Spreads into Context 118
8.4 Tracking Issuer Fundamentals 119
8.5 The Maturity Wall 122
8.6 Monitoring Excessive Risk-Taking 122
8.7 High Yield Supply and Demand 124
8.8 Summary 126
Chapter 9 1940 Act High Yield Investment Funds 127
9.1 The Investment Company Act of 1940 127
9.2 High Yield Mutual Funds 128
9.3 High Yield ETFs 132
9.4 High Yield Closed-End Funds 135
9.5 Comparison of Closed-End and Open-End Fund Returns 137
9.6 Business Development Companies 138
9.7 Summary 141
Chapter 10 Mezzanine Debt, Distressed Debt, and Credit Hedge Funds 143
10.1 Private Investment Funds 143
10.2 Mezzanine Debt Funds 145
10.3 Distressed Debt Funds 147
10.4 Credit Hedge Funds 148
10.5 Summary 150
Glossary 153
Index 169
