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Friday, March 06, 2009


high yield debt opportunism

via ed harrison and bloomberg, high yield authority martin fridson says investors should be taking advantage of the collapse of junk bonds.

While many investors are waiting for prices to stop falling, “the market will rush up very quickly and it will become very hard to get the low price anyway,” Fridson said at a briefing in Hong Kong today. “Even if you get in a little early, you’ll probably do as well as those who get in at the bottom.”

Junk-grade companies worldwide defaulted on 5.2 percent of their bonds in February, up from 4.8 percent in January, Moody’s said yesterday. The default rate will rise to 22.5 percent in Europe and 13.8 percent in the U.S. by the end of this year, according to the New York-based risk assessor.

The amount investors get back from defaulted debt may be as low as 15 cents on the dollar in this credit crisis, compared with an average of about 25 cents during downturns since 1977, Fridson told reporters today.

As a result, junk bonds are getting “a more severe markdown than witnessed at any point during the 1989 to 1991 ‘Great Debacle,’ when prices were pummeled by the repercussions of the savings and loan crisis and the collapse of Drexel Burnham Lambert Inc.,” he said.

harrison also noted that some lenders are, for the first time in quite a while, discovering an ability to raise capital. perhaps investors are starting to work out the triage program that the government has been utterly unable/unwilling to.

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