Fund managers optimistic about corporate high yield

Global high yield fund managers feel the strength of corporate balance sheets has reduced the risk of rising defaults in the next few years, barring a few large problem companies, according to a review by data and analytics firm S&P Capital IQ.

The general consensus from the managers covered is that corporate high yield is fundamentally in good shape. Management teams are remaining bond-friendly, leverage is stable-to-falling and the huge maturity bulge is being pushed out from 2013/14 as fast as companies can refinance, said analyst Kate Hollis.

Most managers expect low, slow growth rather than a recession but there are some divergences from this view, Hollis noted. Managers at WestLB Mellon believe the chance of a eurozone recession is over 50% and expect company results over the next few quarters to be below expectations. However, any slowdown will be much shallower than in 2008, and defaults will be slow to rise as companies have not had the time nor confidence to releverage after the last recession.

Among other views: Wesley Sparks at Schroders notes that some companies rated CCC and below are already being forced to releverage and is concerned this trend might spread. Philippe Igigabel at HSBC felt the refinancing task was more problematic in Europe than the US, as many of the bonds and loans were issued with aggressive leverage and covenants in 2006/07.

The report is available at S&P Capital IQ is part of the McGraw-Hill group of companies.

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