A group of 21 global managers believe Europe’s high-yield market needs a revamp, referring to the U.S. for comparison and inspiration.
In a letter to the Association of Financial Markets in Europe, the group highlighted areas of concern for investors. “We feel it is an appropriate time to refresh and expand the AFME Recommended Market Practices Disclosure by Issuers of the Non-Investment Grade Debt Securities,” the letter said. The guide — a set of four principles that AFME recommends as best practice by issuers in the European high-yield market — was published December 2011.
The first point addressed by the group is disclosure. “As a general point, we believe that the market is best served by providing open and transparent reports and accounts, in line with practice in the U.S. high-yield market.”
The group said one example of improved transparency would be for investor relations pages on the corporate websites of high-yield bond issuers to be “unrestricted and not conditional on prior registration, approval of access, acceptance of confidentiality obligations or other restrictions on the use or disclosure of the information disclosed on those web pages.”
The letter also points out issues about certain types of covenants, with concerns over leverage in some cases; and portability, which it said “arose in Europe and is less frequently seen in the U.S. high-yield market.” The portability issue, the letter said, is concerning as it has “evolved from being used in very specific circumstances … to being incorporated more generally in the market transactions.”
Other concerns include the shortening of non-call periods, which the group said “diminishes potential returns and increases reinvestment risk for investors.”
The letter was signed by AllianceBernstein, BNP Paribas Investment Partners, ECM Asset Management, Fidelity Worldwide Investment, First International Advisors, GLG Partners, Henderson Global Investors, Hermes Investment Management, Invesco Perpetual, Legal & General Investment Management, Muzinich & Co., Neuberger Berman, Northlight Group, Pictet Asset Management, Pioneer Investments, Robeco Group, Rogge Global Partners, Schroders, Susquehanna Ireland, T. Rowe Price and Threadneedle Investments.