Credit status will persist as hard evidence
Aggregate financial ratios give a reliable picture of the state of the highyield market and should not be neglected irrespective of technical factors. Technical factors driving the high-yield market can change fairly quickly but credit status will persist as hard evidence and change only slowly over time. The most important fundamental measures are:
- Free cash flow generation
- Refinancing calendar
- Access to capital markets (bank lending standards)
- Reported earnings and earnings outlook
- Equity performance
- Growth prospects
- CAPEX needs
- Leverage trend
- Coverage trend.
Leverage and coverage ratios are particularly important for the analysis of high-yield issuers. We find significant correlations between the spread levels of selected high-yield issuers and their coverage ratios and their leverage ratios.