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High yield has worst one-day loss in history

04 Jul 2002

The worst one-day loss in the 16 year history of Merrill Lynch's US high yield index was recorded on Wednesday June 26, when the index fell 4.08%. It took a couple of days for the sombre realisation to sink in, before Merrill Lynch released, last Friday, a note about how history had been made.

Phil Galdi, fixed income strategist, pointed out that although WorldCom was the primary driver of the drop, even without the index was down 2.03%.

History, he suggested, offered cold comfort: "More often than not, the market has followed up large one-day losses with additional losses over the next two weeks. Of the nine other days on the 10 Worst list, the Index fell a comparable amount (or more) over the next two weeks five times and was largely unchanged four times. Where there were small gains, in no cases were they anywhere near enough to wipe out the initial loss."

Tyco entered the high yield indices at the beginning of July, weighing into Merrill Lynch's HP00 and HE00 European high yield indices at 8.4%, greater than the originally projected 8.1%. Some high yield investors have already taken on exposure to Tyco, and Joseph Nehorai, portfolio strategist at Merrill Lynch, reported strong investor interest in Merrill's new 3% constrained indices.

High yield investors may find some relief from fallen angels, in the more innocent form of new issues. Elf Antargaz, the French gas distributor, is planning a nine year Eu150m bond to be led by Deutsche Bank.

And to calm the most frayed nerves of investors, there is the story of Carmeuse Lime, which BNP Paribas has had on the road since Tuesday last week. UBS Warburg and Dresdner Kleinwort Wasserstein are co-lead managers.

The Eu250m 10 year senior secured notes, rated pari passu with senior debt, come from a Ba3/BB- rated Belgian company, founded in 1860.

Proceeds of the issue will be used for senior refinancing. The company has only one other major competitor in what is a global/local business of lime related products. The competitor is Belgian.

04 Jul 2002