The Wall Street equivalent of buying a company with no money down is the leveraged buyout, or LBO. The LBO was made possible by the popularization of junk bond, or high yield bond, financings, which was a financial innovation from the 1980s.
Even though the LBO has gone mostly out of usage, it may be time to revisit LBO targets now that high yield spreads are narrowing. I screened non-financial stocks in the S&P 1500 for LBO candidates and came up with a number of interesting insights.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEipWGv8LVWLnOHtUOKV50Ps1KznBg1rK7_Yptk8nbNKEYw6y3WPebUzqg6AMXJGnP9w7AqnuCRn7Ub3aqZlrXGDEskcjMQ2CkFRc5JUHL2t7GLm9w09HLkAVhEjgdSH9KcdaYPXZ8oQaruwal3dWpFU1DCSLzfNm-IUeCn-gGoh5o0h7F6-q6w8fKJ_gIpY/w400-h191/HY%20spreads.png)
It turns out that LBO candidates are relatively rare. They may be the modern deep value equivalent of Ben Graham’s formulation of stocks trading below net-net working capital or current assets minus all debt.
The full post can be found here.