Accessible Version
Accessible Version
Exhibit 1. High-Yield Share of Corporate Bond Issuance and Excess Returns
Series: High-yield (HY) share and excess returns
Horizon: HY share is from 1983 to 2012. Excess returns is from 1983 to 2010
Description: Data are plotted as two curves. Data are yearly. Units are percent (for excess return, left scale) and percent of issuance (for HY share, right scale).
The panel shows the negative correlation between HY share and excess return (note that the left scale is inverted to make the correlation appear positive). The HY share is calculated as the ratio of speculative-grade issuance to total rated corporate bond issuance. Excess returns are calculated as the difference between the log return on the Barclays US HY Index and the Barclays US Treasury Intermediate Index.
For the HY share, the series begins at the start of 1984 at around 35 percent. It steadily rises, peaking at around 55 at the end of 1988 before falling to approximately 10 at the end of 1990. The series consistently rises, hitting about 56 at the end of 1997, before falling to a low of about 12 at the end of 2000. The series continues a pattern of dramatic increases and decreases, and hovers at about 37 at the end of 2012.
For the excess returns, the series follows a trajectory opposite that of the HY share. It starts at about 2.1 and decreases until it hits a low of approximately negative 30 at the end of 1988. The series then skyrockets to about 33 by the end of 1990 before steadily declining to about negative 19 at the end of 1999. The series rebounds, but a precipitous decline occurs between 2002 and 2007, when the series slowly drops from about 32 to negative 48. The series hovers around 11.5 at the end of 2010.
Note: High-yield (HY) share is the ratio of speculative-grade issuance to total rated corporate bond issuance. Excess returns are calculated as the difference between the log return on the Barclays US HY Index and the Barclays US Treasury Intermediate Index. Excess returns are calculated between t and t 2 and shown alongside the HY share at time t on an inverted scale, so that the negative correlation appears positive.
Source: Bloomberg for excess returns. Staff calculations from Mergent Fixed Income Securities Database, Thomson Financial, and Depository Trust & Clearing Corporation for HY share.
Exhibit 2. High-Yield Corporate Bond Issuance
Top panel
Series: Corporate bond issuance
Horizon: 1993 to 2012:Q4
Description: Data are plotted as bars. Data are yearly. Units are billions of dollars.
Corporate bond issuance begins in 1993 with about $58 billion. It decreases by about 30 to reach approximately 28 in 1994. Bond issuance steadily grows to about 107 in 1998 but then experiences a decline in 1999 and 2000. Issuance then doubles in 2001 to around 93. Issuance declines in 2002 and the years 2003 to 2007 see minimum volatility. In 2008, issuance experiences a big decline and the issuance level hits as low as about 34. Issuance sees significant growth in 2009 and 2010 until a slight decline in 2011. By the fourth quarter of 2012, issuance reaches a high volume at more than 280.
Source: Staff calculations from Thomson Financial and Depository Trust & Clearing Corporation.
Exhibit 2. Syndicated Leveraged Loan Issuance
Bottom Panel
Series: Bank and institutional
Horizon: 1998 to 2012:Q4
Description: Data are plotted as bars. Data are yearly. Units are billions of dollars.
Bank issuance begins in 1998 with about $230 billion. It increases about 30 to reach approximately 265 in 1999, where it remains through 2000. Bank issuance suffers large declines to about 185 in 2001 and about 165 in 2002. However, the series rebounds strongly over the next several years. In 2003, it reaches a bit more than 200. For 2004 through 2008, bank issuance remains over 220. In 2009, it declines to about 180. In the first half of 2010, it drops to approximately 170, and in the second half of the year, it finishes slightly lower. Bank issuance remains relatively unchanged at around 300 through 2011 and the first half of 2012. Moderate growth is apparent in the fourth quarter of 2012, with bank issuance coming in at a little under 400.
Institutional (nonbank) issuance is far more volatile than bank issuance. In 1998, institutional issuance totals about 45. It remains below 100 until 2003, when it reaches approximately 120. It nearly doubles in 2004 to about 225 and increases sharply over the next three years to peak at approximately 425 in 2007. Institutional issuance tumbles in 2008 to about 70 and remains close to that amount in 2009. It recovers in the first half of 2010 to approximately 175, rises in the second half to about 225, and continues to average moderate growth until it skyrockets in the fourth quarter of 2012 to about 550.
Source: Thomson Reuters LPC Loan Connector.
Exhibit 3. Credit Spread on High-Yield Corporate Bonds
Series: Credit spread
Horizon: 1997 to January 28, 2013
Description: Data are plotted as a curve. Data are daily. Units are basis points.
For the credit spread, the series begins at the start of 1997 just above 300 basis points. It steadily rises, peaking just above about 600 in late 1998 before falling for the next year. A substantial increase occurs in 2000 from around 400 to a little below 800. Credit spreads decrease again during 2001, but the decline is accompanied by an equal increase during 2002. There is a precipitous decline in 2003, however, and spreads reach about 350. From the end of 2004 through most of 2007, the series stabilizes in a range between approximately 300 and 400. At the end of 2007, the series skyrockets to a bit above 1,250 in mid-2009. The series consistently and dramatically declines thereafter, except for a brief 300 point jump in mid-2011, and hovers at about 400 in early 2013.
Note: Spreads are measured relative to a smoothed off-the-run Treasury yield curve. Data are through January 28, 2013.
Source: Derived from smoothed corporate yield curves using Merrill Lynch bond data.
Exhibit 4. Payment-in-Kind Bond Issuance
Top left panel
Series: Payment-in-kind bond issuance
Horizon: 2005 to 2012:Q4
Description: Data are plotted as bars. Data are yearly. Units are billions of dollars.
Issuance begins in 2005 with about $1.25 billion. It increases by about 5 to 6 in 2006 and by another 11 to approximately 17 in 2007. Issuance declines by about 4 to 13. The biggest drop occurs in 2009, however, and issuance remains at around 0.6 through 2010. Issuance bumps up modestly to about 2 in 2011, but the fourth quarter of 2012 sees the biggest gains with issuance reaching around 17.
Note: Data for 2012:Q4 through Nov. 2012. S&P and its third-party information providers expressly disclaim the accuracy and completeness of the information provided to the Board, as well as any errors or omissions arising from the use of such information. Further, the information provided herein does not constitute, and should not be used as, advice regarding the suitability of securities for investment purposes or any other type of investment advice.
Source: S&P Capital IQ Leveraged Commentary and Data (LCD).
Exhibit 4. Covenant-Lite Loan Issuance
Top right panel
Series: Covenant-lite loan issuance
Horizon: 2005 to 2012:Q4
Description: Data are plotted as bars. Data are yearly. Units are billions of dollars.
Issuance begins in 2005 with about $1.60 billion. It increases by about 21 to 23 in 2006 and by another 85 to approximately 108 in 2007. Issuance declines precipitously by about 105 to 3 in 2008. Issuance further drops in 2009 to less than 1. The series then experiences a rebound to about 7 in 2010. Issuance rises to about 50 in 2011 and through the first half of 2012, until it jumps up to 170 in the fourth quarter of 2012.
Note: S&P and its third-party information providers expressly disclaim the accuracy and completeness of the information provided to the Board, as well as any errors or omissions arising from the use of such information. Further, the information provided herein does not constitute, and should not be used as, advice regarding the suitability of securities for investment purposes or any other type of investment advice.
Source: Thomson Reuters LPC LoanConnector.
Exhibit 4. Dividend Recapitalization Loan Issuance
Bottom left panel
Series: Dividend recapitalization loan issuance
Horizon: 2005 to 2012
Description: Data are plotted as bars. Data are yearly. Units are billions of dollars.
Loan issuance begins in 2005 with about $30 billion. Issuance declines by about 2 and 7 in 2006 and 2007, respectively. In 2008, issuance drops dramatically to about 2, where it continues to stay through 2009. In 2010, issuance shoots up to about 30. A modest decline of about 6 occurs in 2011, before issuance jumps by more than 20 to approximately 50.
Note: S&P and its third-party information providers expressly disclaim the accuracy and completeness of the information provided to the Board, as well as any errors or omissions arising from the use of such information. Further, the information provided herein does not constitute, and should not be used as, advice regarding the suitability of securities for investment purposes or any other type of investment advice.
Source: Thomson Reuters LPC LoanConnector.
Exhibit 4. Average Debt Multiples of Large Corporate LBO Loans
Bottom right panel
Series: First lien/EBITDA, Second lien/EBITDA, Other senior debt/EBITDA, Subordinated debt/EBITDA
Horizon: 1997 to 2012:Q4
Description: Data are plotted as bars. Data are yearly. Units are multiples.
The first lien/EBITDA multiple begins in 1997 at about 4. The multiple declines, on average, to about 2.5 in 2002, and stays at that level through 2003. The multiple increases each year until 2007, when it hits 4. From 2007, the multiple remains relatively stable at around 3.7. The multiple reaches over 4 in the fourth quarter of 2012.
The second lien/EBITDA multiple begins in 1997 at about zero, and remains near or at that level until 2005, when the multiple increases to 0.5. The maximum multiple is reached in 2007 at about 0.7. In years 2008 to 2011, the multiple remains relatively stable at around 0.2. The fourth quarter of 2012 sees a substantial jump to about 0.8.
The other senior debt/EBITDA multiple begins in 1997 at about 0.2, and steadily decreases down to about zero by 2001. Modest increases occur until 2003, when the multiple hits about 0.3. The multiple remains at that level until 2007, when the multiple doubles to about 0.6. In 2008, the multiple decreases to pre-2007 levels, at about 0.26. The multiple grows steadily until it reaches its peak of about 1.36 in the third quarter of 2012. The fourth quarter of 2012 sees a slight decrease.
The subordinated debt/EBITDA multiple begins in 1997 at about 1.70, and steadily decreases down to about 1.00 by 2000. The multiple makes small fluctuations between 1.30 and 1.80 from 2001 to 2005. A substantial decrease occurs in 2006 when the multiple goes down to about 0.73 and remains at that level until the end of 2008. From 2009 onward, the multiple steadily continues to decrease until its fourth quarter of 2012 value of about 0.05.
Note: S&P and its third-party information providers expressly disclaim the accuracy and completeness of the information provided to the Board, as well as any errors or omissions arising from the use of such information. Further, the information provided herein does not constitute, and should not be used as, advice regarding the suitability of securities for investment purposes or any other type of investment advice.
Source: S&P Capital IQ Leveraged Commentary and Data (LCD).
Exhibit 5. Dealer Financing: Corporate Debt
Series: Corporate debt
Horizon: July 4, 2001 to January 23, 2013
Description: Data are plotted as a curve. Data are daily. Units are billions of dollars.
The series begins in mid-2001 with approximately $50 billion of corporate debt. The amount steadily grows until the debt reaches its maximum level of about 250 in mid-2007. From that point onward, the debt begins to decrease until mid-2009, with the sharpest decrease occurring at the end of 2008. A mild increase is evident in 2010, but it is followed by a steeper decrease in 2011. 2012 levels of debt remain relatively constant at about 100.
Note: Dealer financing ("securities in") in the Government Securities Dealers Reports (FR2004) terminology consists of dealer lending cash or other securities and receiving the reference securities. Data are through January 23, 2013.
Source: FR2004.
Exhibit 6. Flows into High-Yield Mutual Funds
Top panel
Series: Positive flows, negative flows, total net assets
Horizon: 2002:Q1 to 2012:Q4
Description: Total net assets are plotted as a curve. Positive flows and negative flows are plotted as bars. Data are quarterly. Units are billions of dollars (for positive flows and negative flows, left scale. For total net assets, right scale).
Total net assets begins in the first quarter of 2002 at about $75 billion and steadily increases all the way through to 2012, with only a noticeable dip in the second half of 2008. The number of quarters with positive flows easily outnumbers the number of those with negative flows. Other noticeable trends are that 2005 has all four quarters showing negative flows while 2004 and 2008 have two consecutive quarters with negative flows.
Source: Morningstar.
Exhibit 6. Flows into High-Yield Exchange-Traded Funds (ETFs)
Bottom panel
Series: Positive flows, negative flows, total net assets
Horizon: 2007:Q2 to 2012:Q4
Description: Total net assets are plotted as a curve. Positive flows and negative flows are plotted as bars. Data are quarterly. Units are billions of dollars (for positive flows and negative flows, left scale. For total net assets, right scale).
Total net assets begins in the second quarter of 2007 at about $0.1 billion and steadily increases all the way through 2012, with occasional plateauing in a couple of the years. The number of quarters with positive flows easily outnumbers the number of those with negative flows. One noticeable trend is that the fourth quarter of 2012 ended on a negative flow.
Source: Morningstar.
Exhibit 7. Total Agency Real Estate Investment Trust (REIT) Assets
Series: Total agency REIT assets
Horizon: 2000:Q1 to 2012:Q3
Description: Assets are plotted as a curve. Data are quarterly. Units are billions of dollars.
Total agency REIT assets begins in the first quarter of 2000 at about $15 billion and increases to about 400 billion by the third quarter of 2012.
Note: Data are through 2012:Q3.
Source: Bloomberg.
Exhibit 8. Collateral Transformation Transactions
Top Panel
Series: Providing pristine collateral: Current activity,
Providing pristine collateral: Discussion of prospective transactions,
Sourcing pristine collateral: Current activity,
Sourcing pristine collateral: Discussion of prospective transactions
Horizon: December 2012
Description: Data are plotted as bars. Units are percentage of respondents.
About 25 percent of dealers said they are providing pristine collateral currently and 25 said they are sourcing pristine collateral currently. About 70 said they are discussing providing pristine collateral and about 60 said they are discussing sourcing pristine collateral.
Zero hedge funds respondents said they are providing pristine collateral currently and 6 said they are sourcing pristine collateral currently. About one-half of hedge funds said they are discussing providing pristine collateral and about 70 said they are discussing sourcing pristine collateral.
Zero trading REITs respondents said they are providing pristine collateral currently and zero said they are sourcing pristine collateral currently. About 30 percent of trading REITs said they are discussing providing pristine collateral and about 35 said they are discussing sourcing pristine collateral.
About 10 percent of mutual funds and ETFs said they are providing pristine collateral currently and about 20 said they are sourcing pristine collateral currently. About one-half of mutual funds and ETFs said they are discussing providing pristine collateral and about one-half said they are discussing sourcing pristine collateral.
Source: Dec. 2012 Senior Credit Officer Opinion Survey on Dealer Financing Terms.
Exhibit 8. Collateral Transformation Transactions
Bottom Panel
Series: Providing pristine collateral: Current activity,
Providing pristine collateral: Discussion of prospective transactions,
Sourcing pristine collateral: Current activity,
Sourcing pristine collateral: Discussion of prospective transactions
Horizon: December 2012
Description: Data are plotted as bars. Units are percentage of respondents.
About 20 percent of pension plans and endowments said they are providing pristine collateral currently and 20 said they are sourcing pristine collateral currently. About 65 percent of pension plans and endowments said they are discussing providing pristine collateral and about 60 said they are discussing sourcing pristine collateral.
About 20 percent of insurance companies said they are providing pristine collateral currently and 25 said they are sourcing pristine collateral currently. About 65 percent of insurance companies said they are discussing providing pristine collateral and about 90 said they are discussing sourcing pristine collateral.
About 10 percent of separately managed accounts said they are providing pristine collateral currently and 15 said they are sourcing pristine collateral currently. About 55 percent of separately managed accounts said they are discussing providing pristine collateral and about 45 said they are discussing sourcing pristine collateral.
Source: Dec. 2012 Senior Credit Officer Opinion Survey on Dealer Financing Terms.