A group of junk-bond managers who buy some of the riskiest debt sold on global capital markets, are pushing back against issuers’ reluctance to provide them with the full picture of their finances.
Janus Henderson, Allianz Global Investors and JPMorgan Asset Management were among 20 asset managers who presented a list of questions on Monday to some of Europe’s largest bond underwriters that prospective issuers must answer on their finances. Failure to respond could prompt investors to charge more or even walk away altogether from bond sales.
“We want them know in advance that investors will be asking these questions so management can be prepared,” said Sabrina Fox, executive adviser at the European Leveraged Finance Alliance that represents the investors.
The questions focus on issuers’ plans for disclosing earnings, their levels of indebtedness and -- if they are private-equity owned -- whether they plan to make acquisitions, according to ELFA.
“Investors must assume the worst when details are not disclosed,” said Clark Nicholls, a senior portfolio manager at AXA Investment Managers, which has $759 billion of assets and is a member of the ELFA group.
“When you get borrowers being selective on the information they disclose, the market isn’t a public one anymore,” he said.
The questionnaire is the first major coordinated step by ELFA since investors set it up this year to lead a fightback after a bond market boom reduced their bargaining power in the face of rapid borrowing by junk-rated companies. As European junk-bond yields fell toward a record below 3% in late 2017, issuers grew cagier about their financial disclosure.
“When the market is overheated and frothy, we see borrowers pushing more and more and things can become less disciplined,” said Andrew Jackson, head of fixed income at Hermes Investment Management.
But the boom started to falter in 2018, providing asset managers with an opportunity to be more assertive with corporate bond issuers. ELFA published a survey last month showing that private companies are facing greater pressure from bondholders to make their earnings public.
“Investors will increasingly differentiate between those with better disclosure and governance,” said Mark Wade, head of industrials and utilities research at Allianz GI, which manages over $30 billion.
“Disclosure and governance are key variables in relative value analysis and companies that seek significant latitude in reporting and covenants may need to be prepared to pay higher funding costs.'
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