Dealer analysts in the high-yield sector are expressing concern about the effect the Securities and Exchange Commission's Regulation FD is having on the debt market, according to BW sister publication Corporate Financing Week. They argue that junk issues have tremendous credit sensitivity due to their leverage factor, requiring a continuous stream of information to keep them at a stable price. But this information, integral for bond pricing, has slowed to a trickle under the rule, according to Michel de Kokoly Thege, v.p. and associate general counsel for the Bond Market Association in New York.
De Kokoly Thege says smaller issuers are affected disproportionately because of the costs associated with the additional legal advice that is being sought, as well as the expense inherent in disseminating the information. Unlike equity analysts, who look for information affecting earnings, fixed-income analysts focus on cash flow. Under the new regime, it has become more difficult to get such information in depth. "When you have a broadly staged conference call, it doesn't leave time for a particular analyst to ask questions," he says.
Tom Haag, a high-yield portfolio manager for Lutheran Brotherhood, agrees Reg FD has made it harder for analysts, but says, "I think it levels the playing field for some. It's a benefit to those who have had less access and it's probably a positive for them." De Kokoly Thege summarizes the rule as essentially being directed at the equity side, forcing fixed-income analysts to pay a price for a problem they did not create. "FD was aimed at one-on-one conferences between issuers and favored equity analysts. But, I don't think anyone identified problems on the fixed-income side on selective disclosure."