Investing in Junk Bonds : Inside the High Yield Debt Market

by Altman, Edward I.; Nammacher, Scott A.

• ISBN13: 9781587981555
• ISBN10: 1587981556
• Format: Paperback
• Copyright: 2002-12-01
• Publisher: Lightning Source Inc

Summary

Details the rise and operation of the high yield debt market as illustrated by the "junk" bond.

Author Biography

Dr. Edward I. Altman is the Max L. Heine Professor of Finance at the Stern School of Business, New York University Scott A. Nammacher is a Principal and Managing Director of Empire Valuation Consultants, Inc., where he has worked since 1992

Table of Contents

Introducing The High Yield Debt Market	1	(10)
High Yield Debt---What Is It?	1	(2)
Why Is It Called Junk?	3	(2)
Why Has This Market Grown and Who's Involved?	5	(2)
Recent Issues and Regulations	7	(1)
Objectives and Recommendations	8	(3)
The Anatomy of the High Yield Debt Market	11	(28)
Growth of the Market	11	(1)
Interest Rates and Returns	12	(7)
Size and Growth in High Yield Debt	19	(2)
New Issues 1978-1984	21	(4)
1985: A Record New Issue Year? Yes and No	25	(4)
1986: Prospects for a New Record Year	29	(1)
Fallen Angels versus Original Issue High Yield Debt	30	(3)
Exchange Debt	33	(6)
New Issuer Characteristics and Underwritings	39	(18)
New Issue High Yield Debt	39	(1)
The Typical New High Yield Bond Issuer	40	(5)
Underwriters	45	(2)
Gross Underwriting Spread Trends and Estimation	47	(10)
Investor Attractions: Mutual Funds and Other Investor Activities	57	(46)
High Yield Debt and the Individual Investor	57	(1)
High Yield Attractions	58	(5)
Major Institutional Investors	63	(32)
Other Institutional Investors	95	(8)
Default Rates on High Yield Debt	103	(42)
Summary of Findings	103	(2)
What Base to Use	105	(4)
The Results	109	(18)
Impact on Annual Returns	127	(3)
Comparing Default Rates with Returns	130	(1)
Bond and Industry Characteristics of Defaulting Firms	130	(11)
Corporate Debt Defaults and Business Failures	141	(2)
Concluding Comments	143	(2)
Assessing Credit Quality and Default Risks	145	(20)
Importance of Credit Quality	145	(1)
Credit Evaluation Techniques	146	(19)
Mergers and Acquisitions---Recent Experience and Leverage Issues	165	(26)
The Recent Activity	166	(5)
Leveraged Buyouts	171	(2)
Impact on Pretransaction Investors	173	(6)
Investor Reaction to Corporate Restructurings	179	(2)
High Yield Debt's Role	181	(5)
Hostile Takeovers and Regulatory Changes	186	(2)
Investor Implications for the Future	188	(3)
Portfolio Strategies in the High Yield Debt Market	191	(16)
Performance Measurement Questions	191	(1)
Summary of Results	192	(1)
Database Properties	193	(1)
Portfolio Construction and Comparison Tests	193	(1)
Benchmark Portfolios	194	(1)
Portfolio Returns Over the Study Period	194	(3)
Returns and Yield Spreads	197	(10)
Testing of Investment Strategies	207	(26)
Issues in Risk-Return Measurement	208	(5)
Annual Risk-Return Results	213	(1)
Zeta Strategies	214	(4)
Significance Testing	218	(1)
Difference in Means Tests	218	(4)
An Additional Mean-Difference Test	222	(1)
Discussion of Results	223	(1)
Portfolio Results Adjusted for Duration	223	(6)
Viable Portfolio Strategies	229	(1)
Some Preliminary Recent Results Using Zeta	230	(1)
High Yield---High Default Risk Portfolios	230	(1)
High Yield---High Quality Portfolios---A Concluding Note	231	(2)
Appendix 1. Data Base Characteristics and Calculations	233	(6)
Appendix 2. Contribution of Total Return From Coupon (C) and Price Changes (P)	239	(2)
Appendix 3. Duration and Zero Coupon Bond Equivalency	241	(6)
References and Bibliography	247	(4)
Index	251