Investing in Junk Bonds : Inside the High

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

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

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

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Investing in Junk Bonds : Inside the High Yield Debt Market

Summary

Author Biography

Table of Contents

Supplemental Materials