DLJ Sits Atop The Junk Bond Mountain

The 144A market increased by 2,100% in the second half of the decade when compared to the first five years, and the underwriters that focused on Rule 144A transactions reaped the rewards.

Namely, Donaldson Lufkin & Jenrette is the biggest high yield underwriter of the decade, although that was not the case in the beginning of the 1990s.

It supplanted Merrill Lynch & Co., which had been atop the junk bond mountain in the first half of the decade, by focusing almost entirely on the high yield, mergers and acquisitions and Rule 144A markets.

From January 1990 to December 1994, Merrill Lynch was the top high yield underwriter with 18.5% of the market, according to statistics from Thomson Financial Securities Data. And DLJ was a distant second with 14.9% of the market during those five years. Even then, however, DLJ was the top underwriter in the high yield 144A market, with a 14.8% share of the market and Credit Suisse First Boston was second with 13.8%.

But during those years, before 144A had become the major force that it is today, there were only 157 deals from the Rule 144A market worth a combined $15.4 billion. In fact, for the five-year period, DLJ's 14.8% market share parlayed into $2.2 billion in proceeds, or roughly the same as a good week's worth of deals by today's standards. CSFB's 13.8% market share was worth $2.1 billion.

DLJ's focus on 144A meant its market share grew throughout the 1990s along with that market (see related story on page 3).

In the second half of the decade, Merrill Lynch slipped to fifth on the league tables to capture 8.7% of the high yield market with $40.9 billion in proceeds in the five years.

Some of the comparisons over time are difficult because of mergers in the investment banking industry, but rounding out the top five for the first half of the decade were the companies that later became Salomon Smith Barney with a 12.0% of the market; Morgan Stanley Dean Witter, 11.1%; and Goldman Sachs & Co., 10.4%.

In the second half of the 1990s, the same three companies round out the top five as well. Salomon came in second with 12.1% of the market over the five years; Morgan Stanley Dean Witter ranked third with 10.8% of the market; and Goldman, Sachs was fourth with a market share of 8.9%. And, of course, Merrill was fifth.

Looking Ahead

High yield issuance was expected to be off nearly 30% for the year, and 2000 is not looking much brighter in terms of volume, according to one high yield banker.

Next year is shaping up to be largely a continuation of 1999, where only the big, known names can get priced and investors shun the lower tier names in the face of higher default possibilities.

The full impact of the frenetic pace of 1997 when almost any issuer could price a deal still has not been felt, one portfolio manager said. There are more defaults in the offing that will play a role in the willingness of investors to finance certain issuers next year.

A lot of deals were postponed this year and one analyst said it is doubtful whether some of them will ever come back.