This was both good and bad. It did bring in many new players on the issuance side of the market but as the demand grew so did the ability to raise money on fictional business plans, especially in the “TMT” (telecommunications, media and technology) space as the internet and technology bubble developed. Like in the equity market, billions of dollars were raised by companies with no revenues and only a plan for the future. This ultimately led to the second “nuclear winter” in high yield which occurred in 2002, culminating with the high profile defaults of Enron and Worldcom and the collapse of the technology and telecom markets. Once again, a period of healing and consolidation began as issuance subsided. But issuance once again picked up starting in 2006 and the market now stands at over $1.3 trillion and growing rapidly, with record issuance over the past two years.2
Now at $1.3 trillion, the high yield market stands as 14% of all outstanding corporate debt.3 Not to mention that over 2013, high yield issuance was 24% of all corporate debt issuance.4 This is a rapidly growing asset class and has become a much more significant component of the total corporate fixed income space. We feel that investors should be paying more attention to this growing market that provides what we see as an attractive tangible yield for active managers who are able to parse out the best opportunities within the asset class.
1 Blau, Jonathan, James Esposito, and Daniyal Khan. “2014 Leveraged Finance Outlook and 2013 Annual Review,” Credit Suisse Global Leveraged Finance. February 6, 2014, p. 41.
2 Acciavatti, Peter D., Tony Linares, Nelson R. Jantzen, CFA, Rahul Sharma, and Chuanxin Li.. “Credit Strategy Weekly Update.” J.P. Morgan, North American High Yield and Leveraged Loan Research. January 10, 2014, p. 8.
3Date from the publication “Outstanding U.S. Bond Market Debt” release by SIFMA, as of 12/31/13, with $9,766.4 billion in Corporate Debt outstanding.
4Data from the publication “U.S. Corporate Bond Issuance” release by SIFMA, data for 2013.
This article was written by Tim Gramatovich, CFA, Chief Investment Officer for Peritus Asset Management, the sub-advisor to the AdvisorShares Peritus High Yield ETF (HYLD).