High Yield Bonds: The Next Phase

1
High Yield Bonds The Next Phase
December 12, 2006

• Martin Fridson, CFA
• CEO, FridsonVision LLC
• 212-937-0975 martin_at_fridsonvision.com
• www.FridsonVision.com

2
The Year So Far
3
Yields and Spreads
2006, Monthly, Through November 30
Source Bloomberg.
4
Where We Are in the High Yield Cycle
5
Default Rate
Moodys Speculative Grade Default Rate,
Trailing-Twelve-Months U.S. Percentage of
Issuers, Q1 1997 Q3 2006, Quarterly
Source Moodys Investors Service.
6
Default Rate and Risk Premium
Default Rate versus High Yield
Spread-versus-Treasuries Q3 1986 Q3 2006,
Quarterly
Moodys Speculative Grade Default Rate,
Trailing-Twelve-Months, U.S. of Issuers.
U.S. High Yield Master II Index (H0A0) YTM minus
U.S. Treasury, Current 10-Yr (GA10) YTM. Sources
Merrill Lynch Co., Moodys Investors Service.
7
High Yield Index Total Return
1987-2006
Through December 7. Source Merrill Lynch Co.
8
BB vs. B Total Return Differential
1989-2006
Through December 7. Source Merrill Lynch Co.
9
New Issuance Quality
Percentage of New Issuance Rated BB- and Higher
by Senior-Equivalent Rating By Number of Issues,
1997-2006
Through September 30. Sources Advantage Data,
Bloomberg.
10
Industry Selection
11
Industry Returns
Industry Rankings by Total Return 2006 Through
September 30
Source Lehman Brothers.
12
Industry Value Tracker
Cheap Rich
Note Based on Spreads as of December 4, 2006.
Sources Advantage Data, FridsonVision LLC,
Lehman Brothers.
13
Industry Value Tracker Performance
Total Returns Relative to High Yield Index August
20, 2003 to March 9, 2006, Monthly Basis
Sources Advantage Data, FridsonVision LLC,
Lehman Brothers.
14
Recent Research Findings

• Fallen Angels versus
• Original Issue High Yield
• 2. Hard versus Soft Landing

15

• Fallen Angels versus
• Original Issue High Yield

16
Performance Comparison
December 31, 1996 to June 30, 2006
(Mean Total Return of Asset Class Mean Total
Return of Three-Month Treasury Bills) / Standard
Deviation of Asset Class Note Mean Total
return of Three-Month Treasury Bills for the
period is 0.92. Difference between the means
is significant at the 88 confidence level.
Source Merrill Lynch Co.
17
Risk Comparison
Source Merrill Lynch Co.
18
2. Hard versus Soft Landing
19
Year-over-Year Change in the Gross Domestic
Product
Selected Periods of Economic Downturn
Source Economagic.
20
Default Rate by Rating Category
1990 versus 2000
Source Moodys Investors Service.
21
Default Rate by Rating Category
1991 versus 2001
Source Moodys Investors Service.
22
Default Rate Impact Hard versus Soft Landing
1 Cohort formed January 1, 2005. Source Moodys
Investors Service.
23
Other Topics
24
Distressed Index Total Return
1997-2006
Through December 7. Source Merrill Lynch Co.
25
Distressed Debt Index Face Value
At Beginning of Year, Billion
Source Merrill Lynch Co.
26
New Issuance Volume
1999-2006
Through December 7. Yellow portion indicates
annualized rate. Source Bloomberg.
27

• For a free trial subscription to Leverage World
  or Distressed Debt Investor, go to the trial
  subscription page on our website
• www.FridsonVision.com