Among the changes to US market regulations proposed by the SEC in November 1998 - a project so large it was dubbed "the aircraft carrier" by sceptical bankers - the plan to repeal a document called the Exxon Capital no-action letter slipped by without attracting much attention. Until now.
Law firm Latham & Watkins fears the move will damage the US high-yield debt market and reduce volume by making it harder for smaller companies to issue. Earlier in the year, it commissioned former SEC chief economist Charles Cox to assess the effects of the proposed changes, and the resultant critical report has just been published. It is supported by 15 leading US investment banks, including Merrill Lynch, Morgan Stanley and CSFB, as well as many high-yield issuers and investors.
Up to 90% of US high-yield bonds (worth $135 billion) are sold to investors as private placements, and known as Series A bonds. They cannot be traded but avoid the lengthy process of SEC registration, allowing corporates to issue opportunistically and fund at short notice.
But most investors do want to be able to trade. Around 180 days after the original private placement, the borrower registers a public issue with the SEC that has identical characteristics to the Series A deal, and is known as a Series B issue.