Flash Update - Short-Biased High Yield

The rally in high yield credit has taken a breather over the past few weeks given a combination of heavy supply, rising rates and weak fund flows.  Today’s (still) record low cost of debt has given companies the incentive to issue debt and increase leverage.  In the past few quarters, we have noticed a general deterioration in credit quality.  You can easily see that debt growth has increased as EBITDA has flattened out in the graph above.  This is a recipe for disaster in some of these highly vulnerable, highly levered, high yield companies that Tradex Global Short-Biased High Yield Portfolio focuses on.  Last twelve month EBITDA growth was down -0.9% in Q1-2013, and was up just under 1% in the prior two quarters.  The end result is that leverage for the median high yield company has risen meaningfully over the last year.