I assume non investment grade debt on an investment grade company trades higher than high grade stuff. I know that different tranches will trade according to the jump in leverage ratios, say between senior bank debt leverage and the leverage on the subordinated tranche. But if two below investment grade tranches are trading, one of an investment grade company and the other on a non investment grade company in the same industry with similar products, the former will probably trade much much lower.
Technically, the leveraged finance market seems like it is only tapped by below investment grade companies in a sellers market, and therefore leveraged finance clients are all mostly investment grade companies.
Are leveraged loans/bonds much different from investment grade debt? If both markets can be secured and the companies in the market are investment grade, why are there differences in terms on agreements between investment/non investment grade debt?
Yes. Investment grade debt is virtually covenant free and has a gigantic pool of investors, whereas HY is typically loaded with covenants and markets to a smaller pool of funds.
The rating of the sponsor or parent as far from the only determining factor in rating debt at the opco level. Debt with a HG sponsor might be much worse off structurally with less investor-friendly covenants, and might be less sought after than one with a BB+ parent.
Ok so major differences.
Essentially then, in an acquisition scenario, a HG acquirer isn't necessarily always good thing for the non investment grade target?
Are you defining "good" as more likely to improve its credit rating?
On this one, BB+ parent/company/sponsors are they automatically covenant heavy issues to the leveraged market?
Each issue is allowed to set whatever coveanats they desire in the OM. They will usually send a preliminary to investors to gage sentiment before finalizing the covenant package. The market demands many more covenants for HY debt.
Previous question: not always but typically would.
This question: you can issue debt at the opco level at lower rates with hardly any covenants, but the choice of capital structure is more than just minimizing interest rate (if it were, every company would pay down debt to get to HG).
What do you mean by 'more than just minimizing interest rates '
PE firms, for example, load up acquired companies with debt. They pay much more in interest than if they had taken on less debt, but their ROE/IRR skyrockets from the leverage. There are reasons to want to be a HY issuer.
It would seem then that the markets are similar in that they both lend debt financing, but differ in the way the debt is distributed which also affects the terms??
Yes.
Generally speaking then, how do banks handle the load? What is private placements and what's the difference from syndications? Also, is there a group that works specifically with the S&T desk for fixed income?
Thus question is too big for a forum like this.
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