European High-Yield Bonds: A gold mine, or a load of junk

Two new European-currency corporate high-yield bonds appeared last month, opening what could soon become a thriving sector of the international bond markets. The welcome which supposedly credit-risk-averse European bond investors gave to the two deals was quite spectacular.

Morgan Stanley led a Dm175 million seven-year issue for battery company Exide Holding. The senior bonds are rated B1 by Moody's. The deal was increased from Dm150 million, after being twice oversubscribed at a spread of 375 basis points over Treuhand bonds, the tight end of the indicated price range of 375bp-400bp. Morgan Stanley had expected 30 institutions to attend a five-city European roadshow. Over 70 turned out.

This deal followed Merrill Lynch's ground-breaking Dm157.5 million 10-year bond for Swiss sanitary systems manufacturer Geberit. That deal was priced at a spread of 420bp over German government bonds and was five times oversubscribed. Geberit is the subject of a leveraged buyout.

Tim...