Covenant erosion adds to HY risks

NO ONE ENJOYS getting insulted – unless, perhaps, they’re a masochist or a contestant on a reality TV show. But it seems investors in high-yield bonds these days are looking to get in on the act. According to veteran high-yield fund manager Philip Milburn of Kames Capital, which runs two high-yield bond funds, investors are now embracing debt structures that are – in words he used recently in addressing fund selectors at the Kames head office – “at best questionable, and at worst downright insulting”.

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