Best high-yield bonds
Bennett Goodman is somewhat wary of his title as global head of high-yield debt for Donaldson Lufkin and Jenrette. "It's something of a misnomer," he says. "We don't simply underwrite high-yield bonds. We've placed a comparable amount of leveraged loans and mezzanine debt. We have a $1.7 billion fund for the latter which has been particularly active."
It's a sentiment repeated all over Wall Street: this business should be called leveraged finance. Given the lack of high-yield deals over the past 12 months or more a mixture of loans and mezzanine, as well as high-yield issuance, has been used to raise capital for companies, especially in the US. "Last year we could issue a high-yield bond with a 10% coupon to finance a debt-to-cash flow multiple of five times for a company," says Bennett. "This year, we can finance up to a four times multiple with bank debt, and the last multiple of leverage with a mezzanine structure including an equity participation which, combined, might yield a return of up to 20%."
There are several reasons for this, including interest rate increases by the US Federal Reserve, the poor performance of high-yield funds and the exceptionally ebullient behaviour until lately of the US stock market.