Copying and distributing are prohibited without permission of the publisher.

Watermark

Dealers Warn Investors Off

11 Mar 2005

A researcher and a banker warned investors to stay away from high-yield bonds, with the researcher going so far as to criticize some of his firm's recent deals.

A researcher and a banker warned investors to stay away from high-yield bonds, with the researcher going so far as to criticize some of his firm's recent deals.

David Newman, co-head of European credit research at Citigroup in London, questioned whether the whole high-yield world had gone insane by describing how leverage continues to increase and covenants continue to weaken on new issues. For example, he noted two-Citigroup-led sales, for Culligan and iesy, each have seen covenant protection for investors weaken.

Leland Hart, executive director in leveraged capital markets at Lehman Brothers in London, told bond investors to run and hide. Given that valuations between bank debt and high-yield bonds are on top of one another on an asset-swapped basis, he said it makes more sense to invest in the senior part of the capital structure, namely in bank debt or warrant-less mezzanine securities.

11 Mar 2005