MacKay Shields & MainStay Investments

High Yield Team

Investors seeking to earn higher income rely on MacKay Shields to manage high yield fixed income strategies that attempt to maximize yield and capital appreciation to better achieve their investment objectives. Our High Yield investment team has earned a reputable position investing in high yield assets since 1991 through a disciplined investment process focused on risk control.

We believe our success has been a result of the consistent application of a bottom-up, value oriented investment approach to investing in the U.S. high yield market, as well as the talents of a team of investment professionals who have an average of 22 years of investment experience.

Investment Philosophy

We feel strongly that outperformance will be achieved over a full market cycle by limiting defaults through superior credit selection. Our time-tested, disciplined investment process seeks to reduce default risk through extensive credit research.

The investment objective seeks to maximize the default-adjusted yield and spread of a diversified portfolio. Because any individual high yield bond priced near par has more absolute downside risk than upside potential, we attempt to control risk and limit defaults in virtually every phase of our investment process.

Investment Process

Our investment process focuses on credits that generate significant free cash flow through the economic cycle and present strong asset coverage. We seek to identify high yield companies with strategic importance in their industries – those with large market shares, low-cost assets and high barriers to entry. Any credit we invest in must have at least 1.5x asset coverage, which we define as our appraisal of a firm’s value divided by the value of its debt fully drawn. By only purchasing credits with at least 1.5x asset coverage, we believe we are building in an acceptable margin of safety against default.

From the universe of credits that present an acceptable margin of safety, we search for companies that have the potential for a near-term catalyst or event that may drive capital appreciation. This may include a company’s willingness and ability to tap into equity markets, an operational or financial restructuring that will meaningfully improve financial results, or substantial near-term free cash flow generation that will be used to retire debt.

As important as it is to know when to buy a security, it is also necessary to know when to sell. This is critical in high yield management, because the upside on a bond is limited as the price appreciates and it becomes call constrained. We will sell an investment for one of three reasons: 1) the security has reached a target price or yield that makes its relative value unattractive, 2) the issuer’s fundamentals have deteriorated (e.g. asset coverage has been reduced to an unacceptable level), or 3) to diversify the portfolio if a security or industry exceeds certain weighting limits.

Screening Objectives
Chart #1: MacKay Shields high yield screening objectives