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Federal Reserve Bank president who published studies on the performance of debt of varying quality, Milken believed that the yields of fallen angel debt often over-compensated for the risk of default loss and that this less understood category of debt provided attractive opportunities for investment. Milken's success in cultivating demand for high yield bonds ultimately opened a primary market for an entirely new type of high yield issuer, one that was deliberately high yield rather than the result of a downgrade.

      A primary market refers to the market for new issues and stands in contrast to the secondary market, or market for existing debt. The significance of a high yield primary market was that the issuers were not only composed of fallen angels. They included companies that made a corporate finance decision to raise significant quantities of debt with full knowledge that doing so would result in their debt being classified as high yield. To provide some context, these companies might willingly issue debt with an 11 % interest rate. The issuers that sought to do this were not necessarily companies that longed for their best days; they included companies that were more entrepreneurial with growth prospects that high yield capital might unlock.

      Early issuers of high yield included Texas International, an energy company engaged in exploration and development whose story is documented in the book by Harlan Platt, The First Junk Bond.6 It also included companies like McCaw Cellular and Viacom, which had tremendous growth opportunities that were capital intensive to fund. High yield debt provided a means of financing this growth, often led by innovative entrepreneurs who built large successful enterprises. Some of these companies, like Viacom, eventually became investment grade, as their investments paid off. Others, like McCaw Cellular, were sold to strategic or financial buyers in successful transactions.

      In opening a primary market for speculative grade issuers, Drexel laid the groundwork for a high yield market that would have profound implications for companies, municipalities, and countries. For corporations who previously either maximized low-cost borrowings or financed operations with high-cost equity, high yield provided a third option, a source of capital between bank or bond borrowings and equity. Although equity capital does not have a stated cost like debt does, the cost of equity is the expected return it provides. For example, many investors expect to generate 10–20 % returns on equity over time. Therefore, high yield, which usually carries a 4–12 % rate, could present an attractive option relative to equity. As an added benefit, interest on the debt is for the most part tax-deductible and thereby lowers the effective cost of borrowings for taxpaying issuers.

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      1

      Credit Suisse.

      2

      Ibid.

      3

      eVestment. Performance data (net of fees and expenses) from May 2013 to June 2015 represents a sample of 181 funds that reported their performance and fund information to eVestment as of Septembe

1

Credit Suisse.

2

Ibid.

3

eVestment. Performance data (net of fees and expenses) from May 2013 to June 2015 represents a sample of 181 funds that reported their performance and fund information to eVestment as of September 14, 2015. WDO ranked #1 since its inception based on this data.

4

eVestment. Performance data (net of fees and expenses) from May 2013 to June 2015 represents a sample of 181 funds that reported their performance and fund information to eVestment as of September 14th, 2015. WDO ranked #1 on return since its inception based on this data.

5

Credit Suisse, SIFMA.

6

Platt, Harlan. The First Junk Bond: A Story of Corporate Boom and Bust. Beard Books, 2002.

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