Heard on the Street: With Corporate Debt Hangover Easing, Leveraged Firms' Shares Are Taking Off
Corporate America is starting to recover from the debt binge of the 1980s. And the stock market is starting to take notice.</br></br>In the past six months, junk-bond defaults have fallen 65% from the same six-month period a year earlier, according to the Bond Investors Association in Miami Lakes, Fla., which publishes Defaulted Bonds Newsletter. The total amount of bonds in default also has begun to decline, after a huge run-up from 1988 through much of 1991.</br></br>With the economy on the mend and junk-bond prices rallying, stocks of heavily indebted companies are outperforming the market as a whole. Last year, an index of 200 leveraged stocks compiled by Shearson Lehman Brothers rose 39.2% in price, compared with 26.3% for the Standard & Poor's 500-stock index.</br></br>This year, a 2.8% gain in the same leveraged index has beaten the market by more than four percentage points. Among the biggest movers in that index have been cyclical companies such as Chrysler, up 65%, Black & Decker, up 37%, and Union Carbide, up 33%. Earnings of all three companies should rebound strongly in a recovery.</br></br>To be sure, some leveraged giants such as R.H. Macy and Olympia & York Developments are still teetering. Sectors including real estate, retailing and oil services remain under pressure. And longer-term debt woes will continue to plague insurance companies and, to a lesser degree, banks.