Investors call for disclosure on junk bonds

Elizabeth Fournier
INVESTORS in Europe’s booming high-yield market are demanding more transparency and disclosure of terms from issuers and underwriting banks, threatening a corporate funding market that was worth more than €60bn (£54bn) last year.

In a letter to the major banks that underwrite high-yield bonds, a group of the 30 biggest European investors in the class have called for issuers to disclose details of private funding agreements to the markets.

The letter, obtained by legal publication IFLR, claims that practices in the mushrooming European market have developed without enough input from the buyside, and that “some of the basic premises that have underpinned senior secured bond issuance to date need to be revisited”.

The group also wants voting rights on enforcement to be standardised, with an even split between senior secured bondholders, and lenders under the senior facilities agreement.

European high-yield is having a bumper 2011, with issuance to date already at €34bn according to figures from Dealogic – more than half the €62.6bn sold over the whole of 2010.

So-called junk bonds are becoming an increasingly popular means of funding debt refinancing and acquisitions, as banks focus on their own capital raisings and loans remain elusive.

March alone saw a record €7.2bn sold into Europe, including German firm Kabel’s sale of a €3.2bn bond to fund its buyout of Liberty Global.

A similar drive for transparency was launched in 2002, when a smaller group of investors demanded changes to the practice of structurally subordinating bond investors to bank lenders.

But threats from investors may hold more weight this time. Not only have protestors tripled, but high-yield bonds in 2002 totalled just €6.2bn – less than a tenth of the amount that could be at stake this time round.