P.M. BRIEFING : Junk Bond Foe Starts Debt Fund

Buyout strategist Theodore Forstmann is trying to put together a $1.5-billion fund that would finance acquisitions of companies using debt, it was reported today.

Forstmann, who has long opposed the use of high-yield junk bonds to fund buyouts, is planning to offer investors in his fund yields of 1 percentage point above the interest rate on five-year Treasury bonds, the Wall Street Journal said.

Those Treasury issues now yield about 8.5%, compared to interest rates of as much as 20% on some junk bonds.

Forstmann’s venture is likely to be watched by Wall Street as an indicator of how good or bad the climate is for debt-financed buyouts. Since the collapse of the junk bond market a year ago, many investors have shunned the idea of funding acquisitions primarily with debt.