Beyond Junk Bonds

Since financial myths exploded in the 1980s, the perspective of time creates a unique opportunity to update and expand the analysis begun in Glenn Yago's 1991 book,Junk Bonds: How High Yield Securities Restructured Corporate America (Oxford University Press). At the time of its publication, Junk Bonds drew controversial responses from the Federal Reserve and government agencies. In retrospect, the evidence clearly casts favorable light on the roleof high yield securities. The research presented here demonstrates how financial innovations enabled capital access for industrial restructuring, capital and labor productivity gains, and improved global competitiveness. Enough time has now passed to allow this dispassionate empirical analysis to shear away thehype and hysteria that surrounded the Wall Street scandals, Washington controversies, and media frenzy of the time. Beyond Junk Bonds provides a one-stop data, reference and case study presentation of the firms and securities in the contemporary high yield market and the financial innovations that spurred growth in the nineties and will continue to finance the future. The high yield market incubated successive waves of financial technologies that now proliferate beyond junk bonds toall the dimensions and dynamics of global debt and equity capital markets. It charts the recovery of the market in the 1990s, the recent wave of fallen angels, distressed credits and defaults, and suggests how the high yield market will be recreated in the global market of the 21st century. It explicatesthe linkages between the high yield market, and other credit and equity markets in managing a firm's capital structure to execute its business strategy. The weakening of the U. S. economy in 2001 and the huge shock to Wall Street from the terrorist attacks of September 11 witnessed a historic increase in the yield to maturity of high yield bonds. Despite the volatility in the flow of funds to high yield mutual funds and occasionally sharp increases in non-investment grade debt yields, theasset class has been one of the best performing fixed income investments of the past decades. In fact, high yield bonds offer an attractive risk-reward ratio competitive with more traditional asset classes. Anyone active in corporate finance, financial institutions and capital markets will find thisbook a must read for interpreting and understanding the recent history both of the high yield marketplace and its interaction with private equity, public equity, and fixed income markets.

The authors have provided a one-step data reference and case study presentation of the firms and securities in the high yield market, examining the financial innovations that spurred growth in the 1990s and will continue to finance the future.

Glenn Yago is a senior economist and director of capital studies at the Milken Institute. He guides staff research in a wide range of topics, from developing financial markets in emerging market countries to applying financial innovations to solving problems of domestic environmental, business, and public policy. Yagos early work in high yield market research and new financial technologies helped bridge the gap between academic theory and practical application foreconomic growth. He served as a professor at the State University of New York-Stony Brook, City University of New York Graduate Center and Baruch College, and a visiting professor in the finance program at the Recanati Graduate School of Business Administration at Tel-Aviv University. He is theauthor and editor of numerous books and widely published in both academic and popular publications and has consulted for corporations, state, local and national governments on economic and financial policy. He is series co-editor for theMilken Institute Series on Financial Innovation and Economic Growth (Kluwer Academic Publishers). He received his M. A. from Hebrew University of Jerusalem and Ph.D. from the University of Wisconsin-Madison. Susanne Trimbath is a research economist in capital studies at the Milken Institute. She leads research projects on all aspects of financial capital, including studies in the development of both international and domestic markets. After completing her MBA at Golden Gate University in San Francisco, her early career was centered on financial services operations, with particular emphasis on trade clearing and settlement. She was Director at Depository Trust and Clearing Corporation in New Yorkand Senior Advisor on a foreign aid project in Russia before returning to complete her Ph.D. from New York University.