Fridson Says Junk Debt Is ‘Extraordinary Opportunity’

Martin Fridson is one of the best known high yield bond analysts out there. For a very long time he was the head of Merrill’s high yield research group, the group that analyses the prospects of debt issued by companies with non-investment grade ratings. Recently, he has warned that default rates on high yield debt would soar and bond values would be crushed as yields rose. This has indeed turned out to be the case. Now, Fridson is becoming bullish and sees huge opportunities in the high yield corporate debt market.

High-yield bonds offer an “extraordinary opportunity” that won’t be repeated for “many years,” even as corporate defaults rise, according to Martin Fridson, chief executive officer of Fridson Investment Advisors.

While many investors are waiting for prices to stop falling, “the market will rush up very quickly and it will become very hard to get the low price anyway,” Fridson said at a briefing in Hong Kong today. “Even if you get in a little early, you’ll probably do as well as those who get in at the bottom.”

U.S. high-yield debt gave investors a 13.2 percent return in the two months to Jan. 31, second only to the 13.9 percent they earned in February and March 1991, according to a Merrill Lynch & Co. index that tracks 1,730 bonds. High-yield, or junk, debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.

Junk-grade companies worldwide defaulted on 5.2 percent of their bonds in February, up from 4.8 percent in January, Moody’s said yesterday. The default rate will rise to 22.5 percent in Europe and 13.8 percent in the U.S. by the end of this year, according to the New York-based risk assessor.

The amount investors get back from defaulted debt may be as low as 15 cents on the dollar in this credit crisis, compared with an average of about 25 cents during downturns since 1977, Fridson told reporters today.

‘Great Debacle’

As a result, junk bonds are getting “a more severe markdown than witnessed at any point during the 1989 to 1991 ‘Great Debacle,’ when prices were pummeled by the repercussions of the savings and loan crisis and the collapse of Drexel Burnham Lambert Inc.,” he said.

The rest of the article is available at the link below. We should see this as yet another data point adding to the thesis that investment opportunities are indeed increasing.

Fridson Says Junk Debt Is ‘Extraordinary Opportunity’ –

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