High Yield

What are High Yield Bonds?

Sources of Added Value

Credit Research

PIMCO’s experienced team of credit analysts, located around the globe, is responsible for evaluating corporate credit. We place a great deal of importance on independent analysis when evaluating corporate credits. We never rely on rating agencies alone. Our staff of seasoned credit analysts rates every credit that we hold. Our research is focused on issues with improving credit profiles and prospects for rating upgrades and, therefore, greater capital appreciation potential. A prerequisite to our evaluating an issuer is access to management. We concentrate on issuers with strong underlying businesses and competitive positions.

Our credit research framework focuses on business and financial risk at the issuer level, as well as security specific risk with the structure of the issue. With respect to business risk, we evaluate the overall industry dynamics, the company’s competitive position within the industry, the quality of the business plan and the quality of management and their ability to execute on the business plan. In terms of financial risk, we evaluate a variety of financial ratios measuring leverage, cash flow, interest coverage and liquidity.

Default and spread widening risk are the dominant potential risks in purchasing corporate debt securities. Our focus on higher quality corporates, combined with our comprehensive evaluation of credits, both at purchase and on an ongoing basis, reduces the risk of downgrade or default.

There are four common criteria that each analyst will focus on: 1) business model 2) cash flow 3) balance sheet, and 4) security structure. The specific metrics and financial ratios will vary based on the industry and as a result the format of reporting the analysis will also vary. In addition, emphasis on the four factors listed above will also depend on the industry, however the general criteria applied to the analysis is consistent across our Global Credit Research team.

Macroeconomic Focus

PIMCO’s robust, top-down macroeconomic analysis of the world’s major economies sets the tone for the structure of our credit portfolios. The assessment of the direction of global economic growth and interest rates provides important insight in choosing the optimal portfolio structure and sector allocation within this strategy.

Risk Management / Controls