Ten reasons to like US high yield today

Global growth concerns, fears of a less accommodative Fed, and limited high yield market liquidity coupled with complacent and crowded investor positioning has served to reprice the US high yield market over the past few months. Following on from the worst quarterly performance in Q3 2014 for some three years, the US high yield market arguably now offers a significantly more attractive entry point. Whilst acknowledging that the market has moved faster over the past few days than I was able to write this blog, here are ten reasons why US high yield could be considered a buy at these levels:

  1. Spreads have moved back to levels not witnessed since October 2013. In June this year, spreads had only been tighter for around 17% of the time (since our data began in the mid-1990s). The recent correction left this number peaking at around 40%.
    US high yield spreads have moved back to 2013 levels
  2. The yield on the BofA Merrill Lynch US High Yield Index recently reached 6.4%, having traded as low as 4.85% in June, and is currently around 6%, a level likely to appeal to institutional buyers.
  3. Whilst the absolute level of yields may look low by historic standards, valuations relative to cash and government bonds still look compelling.
    US high yield looks attractive versus cash
  4. Given the relatively high level of income the asset class generates, and a benign outlook for defaults, the asset class can suffer considerable spread widening before underperforming cash and government bonds. Assuming a 2% default rate and no change in government bond yields,  high yield spreads would need to widen by approximately 100bps from current levels to underperform a similar duration US Treasury bond. This would see spreads back at levels not witnessed since 2012.
  5. Other fixed income assets have significantly outperformed high yield so far this year. According to BofA Merrill Lynch indices, US Treasuries have returned 5.5% and investment grade corporates have returned 7.7% year-to-date, while US  high yield has gained 4.5%. As the chart below shows, BB rated bonds (the highest rated category of the high yield market) have cheapened up considerably vs BBB corporates.
    US BB rated credit has cheapened up versus BBBs
  6. Technicals are in a much better place than they were a few months ago, with the asset class having witnessed some $21 billion of outflows in 2014 (according to BofA Merrill Lynch). New issue supply has slowly abated and the market is becoming more discerning about taking risk.
  7. US high yield company fundamentals, although having worsened slightly over the past couple of years, still look in reasonable shape, with leverage and interest cover both at 3.9x at an index level.
  8. The backdrop for defaults remains benign. Re-financing risk is one of the major obstacles for leveraged companies, but this risk appears limited over the next couple of years as many companies have taken advantage of abundant liquidity to term out their debt, as illustrated in the chart below.
    Refinancing does not pose a near-term threat
  9. When the Fed eventually raises rates, it is likely to err on the side of caution and tighten policy slowly. The carry trade is unlikely to come to an abrupt end in the near future.
  10. Tighter policy is likely to be accompanied by an improving economic backdrop. Whilst the corporate profit share of GDP is already relatively high, it is likely that this would be sustainable in a stronger economy.

A tool for a rising rate environment: high yield floating rate notes

We are entering a new era for interest rates in the developed world. The extended period of ever looser monetary policy is starting to draw to a close. In the wake of the tapering of quantitative easing (QE) from the Federal Reserve (Fed), investors now expect to see the first interest rate hikes in many years, initially in the UK and shortly afterwards in the US. The principal focus of the debate is over the questions of “when?” and “how fast?” interest rates should rise, not “if?”. For bond investors in particular, this transition has thrown up a lot of difficult questions. Having benefited greatly from falling yields and tightening credit spreads, the move to a more hawkish cycle will create many more headwinds and challenges when it comes to delivering returns for many fixed income asset classes.

Consequently, any instrument that can help investors navigate this environment has rightly been receiving a lot of interest and attention. In the latest in our series of the M&G Panoramic Outlook, we will focus on one such instrument, the high yield floating rate bond. In recent years, this instrument has gained popularity with many issuers and the market has grown to a total US$44 billion.

A high yield floating rate note (FRN) has two key defining features: (1) a floating rate coupon that is automatically adjusted in line with changes in interest rates; (2) a relatively high credit spread that reflects the additional credit risk of a non-investment grade issuer.

It is the combination of these two features which not only enables investors to receive an attractive income stream now, but also allows them to benefit from higher coupons should interest rates increase with no associated loss to capital. This last element, the lack of a hit to capital in a rising interest rate environment, is the key difference to the traditional universe of fixed coupon bonds which suffer from price declines as yields move up.

In this issue, we will take an in-depth look at the characteristics and make-up of the high yield floating rate bond market. We will also consider the key drivers of returns, as well as some of the risks and how these can be managed.


Burrito Bonds – an example of the retail bond market

One of our local burrito vendors has been advertising a new 8% bond to its customer base. The company, Chilango, wants to raise up to £3m to fund expansion of its chain in central London. This will be done via a crowd sourced retail offering that’s already drawn some interesting coverage in the financial press. Having performed some extensive due diligence on the company’s products as a team, we can safely say they make a pretty good burrito. However, when we compare the bond to the traditional institutional high yield market, we have some concerns that investors should be aware of.

  1. Disclosure – a typical high yield bond offering memorandum (the document that sets out the rules of the issue, its risk and all the necessary historical financial disclosure) can be several hundred pages long. Producing this is a very time intensive and expensive process, but a valuable one for producing a host of useful information for potential investors. Additionally, a law firm and an accounting firm typically sign off on this document, effectively staking their reputation and incurring litigation risk based on the veracity of the information disclosed.

    In contrast, the Chilango’s document is 33 pages long, with some fairly superficial financial disclosure. The photo below illustrates this comparative informational disadvantage and the relative lack of depth in financial information compared to a recent institutional high yield bond offering from Altice.


  2. Financial Risk – there are two big potential concerns here. Firstly, the starting leverage for the bonds is potentially quite high. Using some admittedly finger in the air assumptions regarding the potential cash flow of each new outlet opened (a necessary approach given poor disclosure), leverage could be around 6.0x Net Debt/EBITDA in 2015. This is certainly at the riskier end of the high yield spectrum. The second major concern is that we don’t know for certain how much debt the company will raise. Chilango state that they target at least £1m in this issue, but are willing to raise up to £3m, leverage is likely to be north of 10x (again this is a best guess). All this means the bonds would in our opinion get at best a CCC rating, right at the riskiest end of the credit rating spectrum for sub-investment grade bonds.Slide2
  3. Security – Chilango state very clearly that these bonds will be unsecured instruments. This means that in the event of a default, the creditors will rank behind any secured creditors. There appears to be limited existing secured creditors, but we see nothing in the documentation to prevent a layer of new secured debt being raised ahead of these notes (something that is a common covenant in institutional bonds deals). Consequently, it’s prudent to assume that in a default situation the recovery value of the bonds is likely to be significantly below face value. This equity-like downside means investors should demand an equity-like return in our view.
  4. Call Protection – these bonds are redeemable at the option of the issuer at any time. Consequently, investor returns could be materially curtailed due to the lack of call protection. Call protection is the premium over face value the investors get when the issuing company redeems the debt early (their call option). Thus some of the benefit also accrues to the bondholder. Take the following return profile:
    8% Bond, Callable at Par
    Years Outstanding Total Return
    1 8%
    2 17%
    3 26%
    4 36%

    If the plan to open new branches goes well, the bond investor should be happy right? Wrong. If this happens, the company may well look like a less risky prospect and will be able to raise debt finance more cheaply. Let’s say a bank offers them a loan at 5%, they could then redeem the 8% bond early, diminishing the total return to bondholders (as per above), and save £90,000 a year on interest costs per year (assuming they issued £3m bonds). Again, call protection is a common feature of the institutional high yield market which protects investors in these situations.

  5. Liquidity – these are non-transferrable bonds. This means that a) the company does not have to file a full offering memorandum hence the lack of disclosure and b) it will not be possible to buy or sell the bonds in a secondary market. This is more akin to a bilateral loan between an individual investor and the company, with the investor in it for the long haul. Consequently, an investor will neither be able to easily manage their risk exposure nor will they be able to take profits should they so wish before the bond is redeemed.
  6. Value – we can see that there are many risks – but to be fair that is the nature of high yield investing. So the real question is, “is 8% sufficient compensation for this risk”. The good news is that this bond has a unique bonus coupon in the form of a free burrito a week for anyone prepared to invest £10,000. At current prices, this equates to 3.63% additional coupon (a steak, prawn or pork burrito with extra guacamole is £6.99), so an all-in coupon of 11.63% (8% cash + 3.63% burrito).We’d argue that a “burrito fatigue factor” should be applied, simply because you may not want a burrito every week and you will probably not be physically near a Chilango every week to cash in this extra coupon. A 75% factor feels about right, which reduces the burrito coupon to 2.72% and the all-in return to 10.72%. So is 10.72% a fair price? To get a sense of this we can look at some GBP dominated CCC rated institutional bonds in other asset light industries
    Bond Price Yield
    Phones 4 U 10% 2019 90.5 12.7%
    Towergate 10.5% 2019 98.5 10.9%
    Matalan 8.875% 2020 101.5 8.5%
    Average: 10.7%

    By coincidence, the all in coupon of 10.7% is bang in line with the average of this (very limited) group of comparable bonds. However, I’d argue that the Chilango bonds should be significantly cheaper than the bonds above due to higher leverage, no liquidity, no call protection and the lack of disclosure. What should this differential be? Again, there is no scientific answer, but our starting point would probably be in the 15-20% range, and only then with some more certainty around the potential maturity of the bond and the ability to share in the future success of the company.

So, much as though we would all enjoy the tasty weekly coupons, our view is that like many of the so-called “retail” or “mini” bond offerings, the Chilango burrito bonds stack up poorly against some of the current opportunities in the institutional high yield market.

M&G has no financial interest in seeing this issue succeed or fail, either directly or indirectly.


Respect Your Seniors – TXU Default Case Study

On 29th April, Energy Future Holdings Corp (the energy business formerly known as TXU) filed for Chapt 11 bankruptcy, listing $49.7bn in debt liabilities. This came after several months of back and forth negotiations between various creditors and the owners of the business. As such the filing was widely expected and the market had been pricing this in.

One thing that was quite an eye-opener, however, was the huge range of recovery values on the various tranches of debt issued by the business. Part of this was due to the inherent complexity of the company’s capital structure. The company had 14 separate major bond issues, issued out of a range of different entities with differing claims on the company’s various assets as shown below:


This great diversity of debt and different legal entities in the capital structure has meant similar differentiation in recovery values for the bonds. Below are some of the trading levels we currently see in the market for the more liquid bonds. At one end of the extreme, the TXU 11.75% 2022’s are currently trading at 119.5% of face value whilst the TXU 10.5% 2016’s languish at 8.8 cents in the dollar. The difference in price reflects the bonds’ relative position in the queue of claims for the company’s assets.


The difference of experience in terms of total returns from these bonds is also stark. Holders of the 11.75% 2022 bonds enjoyed a capital return of c 20% over the past two years (on top of the 11.75% coupon each year), whereas holders of the 10.25% 2015 bonds have been hit with a capital loss of c.70%.


What we think this illustrates very well is that seniority and position in a capital structure has a major impact when determining potential downside for high yield investors. Indeed this factor can often be more important in the event of a default than the quality and credit worthiness of the underlying borrower. Additionally, and somewhat counter-intuitively, it also shows that bondholders can still experience positive returns even if the business they have lent to goes bankrupt.

Whilst the TXU bankruptcy is one of the echoes of the last LBO frenzy of 2006 and 2007, we believe that where you invest in the capital structure will also be important going forward. When default rates do eventually rise from their currently low levels, investing in bonds that rank senior in a capital structure will be one way to limit the potential downside of a high yield portfolio.

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Video – Some thoughts on U.S. credit from our American research trip

A few of the M&G bond team recently visited New York and Chicago on a research trip. We put together a short video to share some of our thoughts regarding US credit markets. A particular focus is the U.S. high yield market where we highlight some sector themes. We also consider the potential impact on U.S. credit spreads when the Fed starts to raise interest rates.

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Stand up for your rights! Covenant erosion in high yield bond documentation

2013 saw a record year for new issue volumes in the European high yield market. A total of $106bn equivalent was raised by non-investment grade companies according to data from Moodys. Whilst this is beneficial for the long term diversification and growth of the market, there have been some negative trends. Given the intense demand for new issues, companies and their advisors have been able to perpetuate the erosion various bondholder rights to their own advantage. What form has this erosion taken and why are they potentially so costly for bondholders? Here we highlight some of the specific changes that have crept into bond documentation over the past 2 years and some examples that demonstrate the potential economic impact for investors.

1) Shorter call periods – high yield bonds often contain embedded call options which enable the issuer to repay the bonds at a certain price at a certain point in the future. The benefit for the issuer is that if their business performs well and becomes less financially risky, they can call their bonds early and re-finance at a cheaper rate. The quid pro quo for bond holders is that the call price is typically several percentage points above par, hence they share in some of the upside. However, the length of time until the next call is important too. The longer the period, the higher the potential capital return for any bond holder as the risk premium (credit spread falls). The shorter the call period, the less likely the issuer will be locked into paying a high coupon. Take for example the situation below: reducing the call period has an associated cost to the investor of 2.6% of capital appreciation.

Shorter call periods

2) 10% call per year at 103 – Similar to the example above, the ability to call a bond prior to maturity has the impact of reducing potential upside to investors. One innovation that favours issuers has been the introduction of a call of 10% of the issue size every year within the so called “non call” period, usually at a preset price of 103% of par. So assuming a 3 year “non call” period, almost 1/3rd of an issuers bond can be retired at a relatively limited premium to par. Take for example the counterfactual scenario below. Here we see the inclusion of this extra call provision has reduced the potential return to bondholders by 3.3% over the holding period.

10% call per year at 103

3) Portability – One of the most powerful bondholder protections is the so called “put on change of control”. This gives the bondholder the right but not the obligation to sell their bonds back to the issuer at 101% of face value in the event the company changes ownership. Crucially, this protects investors from the potential re-pricing downside of the issuer being purchased by a more leveraged or riskier entity. For the owners of companies, this has been a troublesome restriction as the need to refinance a complete capital structure can be a major impediment to any M&A transaction. However, a recent innovation has been to introduce a “portability” clause into the change of control language. This typically states that subject to a leverage test and time restriction, the put on change of control does not apply (and hence the bonds in issue become “portable”, travelling with the company to any new owner removing the need to potentially re-finance the debt). With much of the market trading well above 101% of par, the value of the put on change of control is somewhat diminished so some investors have not seen this as an egregious erosion of rights. The owners of the issuers on the other hand enjoy a much higher degree of flexibility when it comes to buying and selling companies. There are costs to bondholders, however. In particular, as and when bonds trade below face value, this option can have significant value. In the example below we see that the inclusion of portability has an associated cost of 2.4%



4) Conditional Restricted Payment Basket – Another protection for high yield bondholders has been the restrictions on dividends. This prevents owners of businesses from stripping out large amounts of cash leaving behind a more leveraged and riskier balance sheet. If a company was performing very well and the owners wished to take out a large dividend, they would usually be forced to re-finance the debt or come to a consensual agreement with bondholders to allow them to do so. Consequently, the call protections would apply and the bondholders would be able to share in some of the success of the issuer’s business. However, another recent innovation has been the loosening of this “restricted payments” provision to allow a limitless upstreaming of dividend cash out of the business subject to a leverage test. This limits the ability of owners to load up the balance sheet with debt at will, but without the need to re-finance the bonds bondholders loose some of their bargaining power and once more are likely to lose out in certain situations. In this example, we see an impact of 1.0%

Conditional Restricted Payment Basket

What can investors do to cope with these unwelcome changes? Some sort of collective resistance would probably be the most effective tool – bondholders need to be prepared to stand up for their rights – but this is difficult to maintain in the face of inflows into the asset class and the need to invest cash. Until the market becomes weaker and negotiating power swings back toward the buyers of debt rather than the issuers, the most pragmatic course of action is for investors to asses any change on a case by case basis, then factor these in to their return requirements. This way investors can at least demand the appropriate risk premium for these changes and if they deem the risk premium insufficient they can simply elect to abstain. In the meantime, the old adage holds as true as ever – caveat emptor.


High yield: bullish or blinkered?

I recently attended JP Morgan’s annual US high yield conference. It’s one of the best conferences around: well attended, and with more than 150 companies, panel discussions and specialist presentations. As such, the topics covered give a good flavour of the market’s latest thinking.

Unsurprisingly, many of the well-rehearsed arguments in favour of high yield resurfaced once again, with presentations focused on the following:

  • The structurally low default rate (see chart below), largely a function of accommodative central bank policy, limited refinancing risk and growing investor maturity, with spreads over-compensating as a result.


  • Projections that US high yield will outperform other fixed interest asset classes in 2014, returning 5%-6% (leveraged loans likely to deliver 4.5%).
  • Room for spreads to tighten further given that they remain over 100+ bps back of the lows in 2007. Currently 378bps vs 241bps in May 2007.
  • How refinancing, rather than new borrowing, is driving the majority of issuance in the US. Refinancing accounted for 56% of issuance in 2013, though down from 60% in 2012.
  • The need for income in a low interest rate world is providing a strong technical support, evidenced by $2bn+ of mutual fund inflows into the US high yield market year to date. Significant oversubscription for the vast majority of new issues has also been a notable feature of the market for some time now.
  • The short duration nature of the asset class – particularly attractive in an environment of potentially rising rates. Modified duration for US and European high yield is 3.5 years and 3 years respectively. This compares to 6.5 and 4.5 years for the investment grade equivalents.

Now these are all relevant arguments in favour of the asset class, and indeed I believe that US high yield will likely be one of fixed income’s winners in 2014. What did surprise me, though, was the almost total absence of discussion around some of the headwinds that it faces.

For example, presentations seemed to gloss over the fact that much of the good news, from the perspective of default rates at least, has arguably already been priced in. The market is unlikely to be surprised by another year of sub-2% defaults, rather the risk lies in an outcome that sees a higher default rate than anticipated by the consensus, even if that is difficult to envisage right now.

Other challenges are presented by liquidity (while this has improved since the immediate aftermath of the credit crunch, investment banks are still reluctant to offer liquidity given the high capital charges they face and the low yields currently on offer); by the lack of leverage available to end investors compared to 2006-7, when banks had the ability, strength and desire to lend to those investors on margin; and by the increasing negative convexity the market faces at the moment.


With US high yield paper already trading at an average price of 105 and as high as 107 in Europe (see chart above), the threat of bonds being called will act as a cap on further capital appreciation. And, of course, the flip side of these high prices is low all-in yields. With these standing around 3.8% on the European non-financial high yield index and 5.2% on the US high yield index, investors can only question how much lower they can go.


Perhaps in this environment, with inflation ticking along comfortably below 2%, investors should accept that a nominal return of 5-6% looks decent. That said, returns this year are likely to be driven by income rather than capital appreciation, and may well look skinny versus previous years. As I said before, I’m still constructive on high yield, but after the stellar returns in the past few years, we must be careful to avoid being blinkered.

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Tomlins’ guide for getting the best from High Yield in 2014

2013 was another decent year for returns in the high yield market. The US market returned 7.4%, with Europe a little way ahead at 10.3%. Bonds saw solid income returns, low default rates and a small capital gain as a tightening in credit spreads was enough to overcome weakness in the government bond markets. Once again this illustrated how high yield can be one of the few fixed income asset classes that can generate positive returns within a rising interest rate environment.

However, the dead hand of mathematics weighs heavily upon the prospects for the market in 2014. We still believe it will be a positive year for total returns, but expectations are for returns to be in the mid-single digits.

How then can we seek to potentially enhance these returns and reduce volatility in High Yield this year ? Here are five strategies that could help:

  1. “Clip the coupon and conserve your capital” – with lower return expectations, we think coupons (or rather income) will form the bulk of returns this year. On the other hand, with average bond prices above par, protecting the downside and lowering the volatility of capital returns will also be key.
  2. “Dodge duration” – one of the ways to lower the volatility of capital returns and protect portfolios from downside risk is to reduce exposure to volatility in the government bond markets, i.e. reduce the exposure to interest rate duration.
  3. “Financials are your friend” – recently we’ve been much more positive on the scope of financial high yield to enhance returns, especially in Europe. There are still many fundamental issues to be resolved, but the relative valuations and excess yields on offer to gain exposure to a sector that is essentially de-leveraging and de-risking are attractive in our view.
  4. “Learn to love liquidity” – if we do see opportunities to put capital to work at a later stage of the year, it’s important to have the liquidity on hand to take advantage. This may take the form of wider volatility and a sell off or indeed a rush of new issues hitting the market at the same time.
  5. “Don’t burn and certainly don’t churn” – keeping unnecessary transaction costs to a minimum will have a proportionally high impact when returns are expect to be more muted. Trading to try and capture a 10-15% upside is very different from trying to capture an additional 1-2% return when transaction cost can be anything for 50 – 100bps.

A vintage year for high yield issuance?

Much like fine wines, we believe that the year in which a bond is issued is an important factor in shaping its inherent character. The right climate in the markets, like the right weather conditions in the Gironde, can influence the nature of a security for better or for worse. 2013 is already a record year for the new high yield issuance in Europe (see the chart below). But will 2013 be one of the great vintages, or will investors just end up with a bad taste in their mouth and a nasty hangover?

Record HY issuance already in 2013

First of all, let us consider the conditions in which the current crop of deals has been grown. By and large, it’s been fairly benign this year. With a brief hiccup in the summer, the market has enjoyed promises of excess liquidity from all the major central banks, the Eurozone has shown the first green shoots of stabilisation and default rates have remained low.  Happy days then? For issuers and their investment bank advisers, yes, but for investors looking for future returns this is not the case.  The perfect conditions for investors to invest capital is when the storm clouds are on the horizon, there is the sniff of panic in the air and only the juiciest of yields from the highest quality issuers can tempt people to part with their cash. In these times, the power rests with the buyers and the risk premiums extracted can be very attractive.

In contrast, we can see from the chart below that in today’s sunny climes a) the quality of issuance has been deteriorating (measured by credit rating and leverage) b) structural features such as weaker legal covenants*, optional coupons and subordination are becoming more common and c) given the market has been strong, the coupons and hence future returns investors can expect has greatly diminished. Valuation, as always, is at the heart of it all.

Debt/EBITDA of first-time rated HY companies continues to rise

Take for instance, the respective returns experienced by two bonds issued by German healthcare provider Fresenius (one issued in 2009, the other issued in 2013). The USD 9% 2015 bond issued in the vintage year of 2009 performed admirably over the first nine months of its life. In contrast, the EUR 2.875% 2020 bond issued in January 2013 has been far less fruitful for investors. Products of the same vineyard, but with some very different results.

Same vineyard, very different results

Of course we are not comparing like for like; 2013 is not 2009, but it illustrates the importance of market conditions and your starting point for valuations when it comes to assessing prospective returns.

There is a silver lining, however. The wave of new issuance is good for the long term development of the European high yield market. More bonds and issuers means more depth and more diversification. There is also greater scope for differentiation between different fund managers as the investment universe grows. The stock selection decision is becoming ever more important.

Nevertheless, whereas the quantity of the 2013 vintage is beyond dispute, we believe its quality is somewhat dubious. The 2013 crop is arguably more Blue Nun than grand Bordeaux.

*One new development has been the introduction of “portability”. A standard high yield covenant obliges the issuer to buy back all bonds at 101% of face value in the event the business is sold. This protects bondholders from an adverse outcome in the case of unexpected M&A. Exceptions to this are now being introduced into the legal language governing the bonds allowing issuers to be bought or sold without the obligation to redeem their bonds – allowing a so called “portable capital structure”. We do not like this dilution of bondholder rights.


Equity multiple expansion to the rescue. A benefit to high yield ?

The high yield market rightly pays a good deal of attention to leverage trends (the relationship between debt and earnings). The larger the quantum of debt a business carries relative to its earnings, the greater the risk. Other metrics are arguably as important, though it is the leverage metric that consistently garners the lion’s share of attention. With spreads near the post Lehman tights, it is unquestionably concerning to see a trend of rising leverage as earnings plateau and companies generally take on more debt.



The very same central bank policies that have kept bond yields low and encouraged high yield companies to take on more debt have also helped to support higher equity prices. As money has flooded into the asset class, the market has not surprisingly re-rated upwards. What this has meant for high yield investors is that one measure of the ‘margin of safety’, or an equity cushion has, at least temporarily, been increased. The chart below shows the implied equity cushion by subtracting the average level of US high yield leverage from the S&P Mid Cap trailing 12 month enterprise multiple. The higher the implied cushion the better. So for example with stock markets at the lows in early 2009, the implied equity cushion fell to a mere two turns, but has since recovered to a far more healthy and above average six.


Many will no doubt point out that an implied cushion is exactly that- implied. And the argument is clearly a pro- cyclical one that relies on an imperfect comparison. We’d concur with that and emphasise the fact that there can be no substitute for thorough credit analysis. We will always prefer to invest in appropriate financial leverage, strong interest coverage and free cash flow generation over equity implied multiples. The former gives a business flexibility and exposes it less to market vagaries.

Yet there is no getting away from the fact that central bank policy has, and can still yet, come to the rescue of even some of most levered high yield companies. In hindsight, few of us would have predicted the surprisingly low level of defaults we’ve witnessed through this cycle. And whilst IPOs of high yield companies has been a fairly rare thing over the last few years, higher equity multiples, an on-going return of animal spirits and a desire/need to put money to work may yet alter that trend.


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