Leveraged Finance: Concepts, Methods, and Trading of High-Yield Bonds, Loans, and Derivatives

About the Authors.

Chapter 1: Introduction.

Part One: The Cash Market.

Part Two: The Structured Markets.

Part Three: The Synthetic Markets.

Part Four: How to Trade the Leveraged Finance Market.

Part Five: Default Correlation.

Part One: The Cash Market.

Chapter 2: The High-Yield Bond Market.

The Reasons Companies Are Classified as High-Yield Issuers.

Size and Growth of the Cash Market.

Types of Structures.

A Look at Ratings.

Risk and Return for Bonds.

What's Priced In?

How About Recoveries?

Summary.

Chapter 3: Leveraged Loans.

A Tale of Two Loans.

Introduction to Leveraged Loans.

An Overview of Loan Terms.

Loan Recovery Rates.

Loan Default Rates.

Summary.

Part Two: Structured Market.

Chapter 4: Collateralized Loan Obligations.

Understanding CLOs.

Elaborations and Details.

Summary.

Chapter 5: CLO Returns.

Default and Recovery Scenarios.

Distressed Loan Prices, Overflowing Triple-C Buckets, and CLO Returns.

Summary.

Chapter 6: CLO Portfolio Overlap.

Collateral Overlap in U.S. CLOs.

Collateral Vintage vs. Deal Vintage.

Favorite CLO Credits.

Single-Name Risk and Tranche Protections.

Excess Over-Collateralization and Excess Over-Collateralization Delta.

Senior and Subordinate Excess OC Deltas.

Equity Tranches and Distressed Tranches.

Summary.

Part Three: Synthetic Markets.

Chapter 7: Credit Default Swaps and the Indices.

What Are Credit Default Swaps?

Who Uses Protection, and for What?

Growth of the Market.

Marking-Market: SDV01.

Credit Default Swaps Indices.

Contrasting the LCDX and CDX Indices.

Beta: A Study of Movement..

Summary.

Chapter 8: Index Tranches.

Basic Mechanics of the Tranche Market.

Loan Tranches.

Summary.

Part Four: How to Trade the Leveraged Finance Market.

Chapter 9: Recessions and Returns.

Broad Market Performance.

Sector Performance.

Performance by Rating.

Summary.

Chapter 10: Framework for the Credit Analysis of Corporate Debt.

Approaches to Credit Analysis.

Industry Considerations.

Financial Analysis.

Quantitative Models.

Summary.

Chapter11: Trading the Basis.

The Basic Basis Package.

Constructing the Basic Package.

Moving Away from the Basic Model.

Adding Positive Convexity.

Negative Convexity.

A More Complex Basis Package.

Hedge Ratios for CLO Hedging.

Summary.

Chapter12: How Much Should You Get Paid to Take Risk?

Single Name Credit Risk.

Curve Risk.

Basis Risk.

Capital Structure Risk.

Summary.

Part Five: Default Correlation.

Chapter 13: Default Correlation: The Basics.

Default Correlation Defined.

Default Probability and Default Correlation.

Summary.

Chapter 14: Empirical Default Correlations: Problems and Solutions.

Empirical Results.

Problems with Historical Default Correlations.

Proposed Solutions.

Summary.

Index.