NEW YORK, May 25: Merrill Lynch & Co. may soon offer alternatives to its widely followed high-yield bond index to help money managers deal with a new wave of debt recently slashed to junk.

The new indexes would cap the percentage of any one issuer’s bonds they contain, limiting the impact from big companies with massive debt.

Recent downgrades of telecommunications giant WorldCom Inc. and other big US companies have raised concerns that indexes will become top-heavy with bonds of a few debt-laden names.

WorldCom, with about $24 billion of US public debt, will become the largest issuer in Merrill’s US High-Yield Master II Index, making up just under 4 per cent of the index, when it migrates there at the end of the month from the high-grade index, said Preston Peacock, Merrill Lynch’s director of portfolio strategy.

Two other recently downgraded companies, Qwest Communications International Inc. and Georgia-Pacific, are expected to make up about 3 per cent and 1.5 per cent, respectively, he said.

“It’s a huge turnover, a tremendous exposure to just a small number of names,” said Peacock. “In some cases, they (funds) are simply not allowed to own that much due to their own risk guidelines.”

Caps of about 2 per cent are being considered for the new “constrained indexes,” although different caps and indexes may be created for different needs, Peacock said.—Reuters