Up Front News
March 3, 2003
Evergreen Closed-End, Junk Fund IPO Raises $900 Million
Evergreen Investments of Boston last week launched the largest-ever initial public offering of a closed-end, high-yield bond fund, raising a record $900 million. If the fund's 15% over-allotment, shares-purchase option is exercised, that could push as high as $1 billion.
Merrill Lynch, Salomon Smith Barney, UBS Warburg and Wachovia Securities, the latter the parent company to Evergreen, were co-lead underwriters for the offering.
Ironically, that amount tops the previous record assets raised during the IPO of the Salomon Brothers High Income Fund II, the closed-end, high-yield bond fund that saw $855.9 million flood into its coffers. That fund debuted on May 22, 1998, according to Lipper. Now falling to third place in the high-yield IPO derby is the Dreyfus High Yield Strategies Fund, which began trading in April of 1998 after raising $799.2 million.
For closed-end funds, 1998 was the most recent year of the "junk," with a total of eight high-yield, closed-end funds premiering. But that wasn't a record number of offerings, according to Lipper. Ten years earlier, in 1988, a total of 10 high yield funds were launched.
The Evergreen Income Advantage Fund, which began trading Feb. 26, will be managed by Evergreen's high-yield group. The team, led by Prescott Crocker, currently manages a total of $2.4 billion in high-yield securities across Evergreen's mutual funds, separate accounts and commingled funds units.
The "It" Sector for '03
Several industry fixed-income portfolio managers and chief investment officers have predicted that high-yield securities could be "the" sector to be in for 2003. "This year, junk could be the best-performing asset class," proffered Don Ross, president and CIO of National City Investment Management Co. of Cleveland, advisor to the Armada Funds group.
So, what's driving sales of high-yield funds? Historically low long-term interest rates are compelling investors to seek out high-yield havens, said Don Cassidy, senior research analyst with Lipper. "The real question is whether this will prove to be a good time to buy high-yield securities," he said. Despite optimistic predictions, if the economy doesn't show a marked improvement, continuing high default rates could pose a threat to those with high-yield hopes, he added.
Evergreen attributes its success to the general expectation for interest rates to rise this year, which would make the high-yield asset class an attractive place to be, said Maryann Bruce, President of Evergreen Investment Services.
Evergreen also executed a guerilla sales and marketing operation, she added. Over the fund's 20-day public offering, Evergreen executives held 115 road shows in 22 cities, she said. It also held in-branch meetings with 1,255 representatives from its four underwriters, and executed an internal wholesaler phone-call blitzkrieg under which 100,000 phone calls were made. In addition, it was able to piggyback onto other conference calls being held at brokerage offices, and hosted a regular once-a-week chat with the fund's investment team. Some 650 individuals called in to participate, Bruce said.
While Evergreen has set a new record in the high-yield, closed-end universe, the fund isn't the overall IPO winner. Bragging rights for bringing to market the largest-ever closed-end fund belongs to MFS of Boston. In March of 1988, the MFS Intermediate Income Fund raised the still record $1.9 billion. But Van Kampen Investments of Chicago gave MFS a run for its money as sponsor of the second-largest IPO ever. The Van Kampen Senior Income Fund debuted on June 24, 1998, flush with a hefty $1.8 billion.
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