Leveraged Financial Markets: A Comprehensive Guide to Loans, Bonds, and Other High-Yield Instruments: A Comprehensive Guide to High-Yield Bonds, ... Instruments (McGraw-Hill Financial Education) - Hardcover

MAXWELL

Hardcover

ISBN 10: 0071746684 ISBN 13: 9780071746687

Verlag: McGraw Hill, 2010

Inhaltsangabe

Public companies acquire most of their outside capital from debt fi nancing and, more specifi cally, leveraged finance--an asset class that falls somewhere between traditional fixed income and stocks. While this type of debt fi nancing carries significant risk to both investors and companies, the potential returns make leveraged finance a cornerstone of the modern financial markets. Leveraged Financial Markets is a gathering of the most astute and informed minds in the business. The powerhouse editorial team of William F. Maxwell and Mark R. Shenkman have handselected contributions from the top practitioners and thinkers working in leveraged finance today. The result is an authoritative guidebook that provides you with what you need to navigate the highyield market in the integrated global economy. Packed with a wealth of analytical models illustrating the realities of distress probabilities and losses in default, Leveraged Financial Markets gives you all the insight and strategies you need to: Use the Sharpe ratio to measure the return versus risk for high-yield debt Develop and oversee a portfolio of high-yield bonds Value individual high-yield issuances It also updates you on changes in the high-yield bond market and features in-depth coverage of numerous debt vehicles leveraged in the market today, including collateralized debt obligations (CDOs), credit derivative swaps (CDSs), collateralized loan obligations (CLOs), and leveraged loans. Leveraged Financial Markets is your blueprint to becoming a virtuoso of this resilient and popular asset class.

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LEVERAGED FINANCIAL MARKETS

A COMPREHENSIVE GUIDE TO HIGH-YIELD BONDS, LOANS, AND OTHER INSTRUMENTS

By WILLIAM F. MAXWELL, MARK R. SHENKMAN

The McGraw-Hill Companies, Inc.

Copyright © 2010 The McGraw-Hill Companies, Inc.
All rights reserved.

ISBN: 978-0-07-174668-7

Contents

Chapter 1: An Overview of Leveraged Finance William F. Maxwell
Chapter 2: The Components of the Leveraged Finance Market William F. 
Maxwell
Chapter 3: Understanding the Role of Credit Rating Agencies William F. 
Maxwell, and Philip Delbridge
Chapter 4: Leveraged Loans as an Asset Class Daniel Toscano
Chapter 5: Collateralized Loan Obligations Frederic R. Bernhard, CFA, 
John E. Kim, and Jonathan A. Savas
Chapter 6: Differences between CLOs and Structured Finance CDOs Jonathan 
Blau
Chapter 7: Credit Analysis and Analyzing a High-Yield Issuance Amy 
Levine, CFA, and Nicholas Sarchese, CFA
Chapter 8: Bond Indentures and Bond Characteristics William J. Whelan, 
III
Chapter 9: Credit Models for Assessing Firm Risk William F. Maxwell, and 
Philip Delbridge
Chapter 10: Performance of Credit Metrics William F. Maxwell, and Philip 
Delbridge
Chapter 11: Principles of Managing High-Yield Assets Mark R. Shenkman
Chapter 12: The Pitfalls of Managing High-Yield Assets Mark R. Shenkman
Chapter 13: Performance Analysis Frederic R. Bernhard, CFA
Chapter 14: Trading in the High-Yield Market Neil Yaris, and Jason Hodes
Chapter 15: CDS: A Primer on Single Name Instruments and Strategies Sivan 
Mahadevan
Chapter 16: Leveraged Loan CDSs Vishwanath Tirupattu and Sivan Mahadevan
Chapter 17: Debtor-in-Possession Financing William F. Maxwell, and Philip 
Delbridge
Chapter 18: Distressed Investing David J. Breazzano
Glossary of Key Terms
Notes
Bibliography
Index

Excerpt

CHAPTER 1

AN OVERVIEW OF LEVERAGED FINANCE

William F. Maxwell

Rauscher Chair in Financial Investments, Cox School of Business at SMU

Broadly defined, leveraged finance deals with the riskiest forms of debtfinancing. These encompass original issue debt from investment-bank-issued debt,high-yield bonds, or bank-issued debt (leveraged loans), and debt that hasfallen from investment grade to high-yield status ("fallen angels"). Creditdefault swaps also play an important role in these markets because they arederivative contracts deriving their value from the risk of default on specificfirm debt or aggregate default risk. As such, they provide an alternativemechanism for investors to take short or long positions on the underlyingassets.

The modern high-yield bond market began in the early to mid-1980s when DrexelBurnham started issuing bonds, which were rated high yield at issuance. Beforethis time, high-yield bonds consisted of "fallen angels." Since the mid-1980s,the high-yield market has gone through significant changes and upheavals, andthe market has evolved from being solely based on high-yield bonds to being abroader and more diverse market. Leveraged loans (the equivalent of high-yieldbonds issued by banks) and credit default swaps (default-triggered derivativeinstruments) became prevalent in the market in the middle to late 1990s.

The leveraged finance market has always been a volatile market, with the marketexperiencing significant boom and bust periods. It is not surprising then thatthe leveraged finance market as well as all aspects of the financial marketexperienced dramatic upheaval during 2008. In 2008, the high-yield bond,leveraged loan, and credit default swap (CDS) indexes were down by 27%, 29%, and13%, respectively. However, the high-yield bond and leveraged loan marketsrecovered with historically high returns of 50% in 2009. In addition, 2009 was arecord year for high-yield bond issuance, but it also evolved back closer to itsroots with the virtual disappearance of leveraged loans. Even after thefinancial market meltdown in 2008, it is clear that leveraged finance remainsone of the cornerstones of financial markets.

Leveraged finance is a large and significant component of the fixed-incomemarket. It has grown dramatically since its inception, and there were $864billion and $1.64 trillion in high-yield bonds and leveraged loans outstandingin 2007. In total this represents 8% of all fixed-income assets (see Figure1.1).

Debt is the primary source of external capital for public companies. Within thebroader category of debt financing, leveraged finance is the predominant source(Table 1.1 provides issuance volume by security class). It is clear thatleveraged finance (high-yield and leveraged loans) is the primary source ofcapital. However, there is significant variation in the proportion of newfinancing associated with leveraged finance over time. During down economicperiods, access to these markets is limited. This is apparent as issuance volumein the leveraged finance market can drop significantly in down periods.

What also is apparent from Tables 1.1 and 1.2 is that there hasbeen dramatic growth in the use of leveraged loans. (Some of the leveraged loansissuance volume can be misleading because it includes "revolvers." These are acommitment by the banks to issue short-term debt, less than a year to maturity,but rarely do firms fully draw on these "revolvers.") The growth of leveragedloans is the result of the introduction of the institutional leveraged loanmarket, loans that are syndicated to nonbank institutions. Until the late 1990s,leveraged loans were issued by banks with the loans typically being syndicatedto other banks. In the late 1990s, loan documentation was standardized, whichpermitted the development of a secondary market in bank loans. This wasnecessary before nonbank institutional investors would purchase the securitiesin either the primary or the secondary market. In addition, the late 1990s andearly 2000s led to an increased demand for securitized products. Given thematched payout structures and variable rates of leveraged loans and securitizedproducts, there was a strong demand for leveraged loans, which were thenpackaged into collateralized loan obligations (CLOs). With these developments,the leveraged loan market exploded (see Tables 1.1 and 1.2).

The sizes of the leveraged loan and high-yield bond market were roughlyequivalent in 2004 (Table 1.2). But by 2007, the leveraged loan marketwas 2.5 times larger than the high-yield market in terms of new issuance.However, the financial meltdown in 2008 brought about a fundamental shift backto the issuance of high-yield bonds away from leveraged loans for corporations.While new issuance volume dropped dramatically for both high-yield bonds andleveraged loans in 2008, this shift was more pronounced in the leveraged loanmarkets as bank capital was seriously constrained. This trend continued into2009 as the high-yield bond market experienced a historical peak of new issuancevolume while the leveraged loan market was next to nonexistent.

The Increasing Use of High-Yield Debt as a Financing...

Details zur Ausgabe

• Verlag: McGraw Hill
• Erscheinungsdatum: 2010
• Sprache: Englisch
• ISBN 10: 0071746684
• ISBN 13: 9780071746687
• Einband: Gebundene Ausgabe
• Anzahl der Seiten: 432
• Kontakt zum Hersteller: Nicht verfügbar
• Verantwortliche Person: gpsr@libri.de; gpsr@libri.de; ; Friedensallee 273; Hamburg; 22763; Deutschland