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ARTICLE · 25 APRIL 2014

High Yield Debt: Credit Bubble And Litigation Risks

Jones Day
Jones Day
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The past few years have seen a surge of high yield debt issuances.

United StatesFinance and Banking
Jayant W. Tambe
Jayant W. Tambe
Howard Sidman
Howard Sidman
J. Maki
J. Maki
Scott Greenberg
Scott Greenberg
Michael Thayer
Michael Thayer
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The past few years have seen a surge of high yield debt ("HYD") issuances. By some accounts, issuers sold more than $400 billion in HYD in 2012 and more than $500 billion in 2013, and the HYD markets are off to a healthy start in 2014.1 With yields on U.S. Treasuries, money market funds, and other investments depressed as a result of unprecedented monetary policy in the U.S. and EU, demand for HYD products continues to rise, fueled by yield-seeking investors.2 This increased demand has caused HYD bond prices to rise and yields to fall.3

As investment in HYD booms and the yield spreads over Treasuries shrink, some believe that the next credit bubble is growing and about to pop.4 If the bubble bursts, investor losses, governmental investigations, and litigation are sure to follow. This Commentary identifies potential litigation risks for those institutions engaged in the issuance and placement of HYD products and discusses several measures institutions can

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