Rising Up From The Great Debacle

Saving Distressed Debt After The Swashbuckling 1980s

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Table of Contents

• Saving Distressed Debt After The Swashbuckling 198 …

• The Great Restoration

• Further Vindication By The Academy

• The Great High-Yield Rebound And Expansion

Today we share with readers a special issue of Porter’s Daily Journal, on a day when both Porter & Co. and the U.S. stock markets are closed in honor of Presidents’ Day. 

Next week, Columbia Business School Press will release Donald Chew’s new book on corporate finance that features an entire chapter on the legendary dean of high-yield debt, Marty Fridson, who oversees Porter & Co.’s Distressed Investing. Below, in place of our normal insight and analysis, and in advance of the book’s publication, we are offering an excerpt from that chapter, entitled “Martin Fridson, The Extraordinary Success Of The High-Yield Bond Market, And The Leveraging Of Corporate America.” Attached below is the full chapter.

After a brief introduction that provides some background on the high-yield debt market in the 1970s and 1980s, we begin with the excerpt from Donald H. Chew Jr.’s The Making Of Modern Corporate Finance. 

Today, the high-yield debt market is a large and widely accepted segment of the investment landscape. But it wasn’t always this way. Until just 50 years ago, few mainstream investment firms would deal with non-investment-grade debt – that is, bonds that the ratings agencies designate lower than BBB because they believe the risk of the issuing company defaulting on the bonds is real. In fact, before the 1970s, there was no real public market for trading high-yield debt. 

Then, beginning in the late 1970s, the high-yield debt market started to boom. Junk bonds, the informal term for debt with a rating below BBB, became a great source of financing during the advent of hostile takeovers and leveraged buyouts (“LBO”), as we recently detailed in the Daily Journal. When corporate raiders got shut out of others lending options, they turned to these more expensive, but easier-to-access debt instruments. And the high-yield-debt market flourished – with $30 billion in new issues a year by the end of the 1980s.