Drivebys Systematically Underperform

Abstract

Unlike traditional high-yield bond offerings, which typically entail a two-week roadshow of presentations to prospective investors, driveby offerings are announced and priced within one day. The yield spread of the average driveby deal widens versus the high-yield index in the first week and the first four weeks after issuance, while the spread of the average non-driveby deal tightens. This finding is statistically robust. Drivebys tend to come to market when the pressure to invest surplus cash is greatest. Portfolio managers who can hold out generally have an opportunity to buy the issues more cheaply in the secondary market.