The European market is seeing a proliferation of subtly differentiated alternatives to traditional bonds, which is making it more attractive to borrowers, said sell-siders. While there is no hard and fast evidence yet, bankers said the new products could boost high-yield volumes.
The main advantage to borrowers is the greater flexibility afforded by the range of new products, said Nicholas Coates, head of European high yield at the Royal Bank of Scotland. In 2000, the European market was bifurcated between high-yield bonds and warrant-less mezzanine, but today a plethora of new securities is filling the old gap between these two poles, including second-lien notes, secured floating-rate notes, floating-rate and fixed-rate mezzanine.
The investor base for any of the new tradable securities, meanwhile, is largely the same as for a fixed-rate, high-yield bond. While the investor bases for high-yield bonds and warrant-less mezz were highly distinct in 2000, they have converged over the past five years with the influx of money to hedge funds able to invest across the capital structure, and an increased emphasis on relative value models at real money managers.