The Leverage Buyout Overhang

http://seekingalpha.com/article/1940621-the-leverage-buyout-overhang?source=feed By AdvisorShares:

Heather Rupp, CFA, Director of Research for Peritus Asset Management, the sub-advisor to the AdvisorShares Peritus High Yield ETF (HYLD), analyzes credit fundamentals in the high-yield market.

Between the very high premiums on many outstanding bonds and the low yields on many newly issued credits, there is plenty to avoid in today’s high yield market. There are also weaker credits that have deteriorating fundamentals or highly levered balance sheets that investors should also steer clear of. By looking into the credit fundamentals, the investor can evaluate the sustainability of the capital structure and assess factors such as use of proceeds. The use of proceeds can include dividends being paid to private equity holders or leveraged buyouts (LBOs). While we are not opposed to LBOs, as they can often produce very supportive private equity partners, what does concern us is when the capital structure is levered up to a potentially unsustainable

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