junk bond

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Related to Junk bonds: High yield bonds

Junk bond

A bond with a speculative credit rating of BB (S&P) or Ba (Moody's) or lower. Junk or high-yield bonds offer investors higher yields than bonds of financially sound companies. Two agencies, Standard & Poors and Moody's Investor Services, provide the rating systems for companies' credit.

High-Yield Bond

A bond with a low rating. Bonds rated less than Baa3 by Moody's or BBB- by S&P or Fitch are considered high-yield bonds. They have higher yields because they have a higher risk of default on the part of the issuer. High-yield bonds are considered sufficiently high-risk that the law does not allow banks to invest in them. They are also called low-grade bonds, and, informally, junk bonds.

junk bond

A high-risk, high-yield debt security that, if rated at all, is graded less than BBB by Standard & Poor's or BBB3 by Moody's. These securities are most appropriate for risk-oriented investors. Also called high-yield bond.

Junk bond.

Junk bonds carry a higher-than-average risk of default, which means that the bond issuer may not be able to meet interest payments or repay the loan when it matures.

Except for bonds that are already in default, junk bonds have the lowest ratings, usually Caa or CCC, assigned by rating services such as Moody's Investors Service and Standard & Poor's (S&P).

Issuers offset the higher risk of default on junk bonds by offering substantially higher interest rates than are being paid on investment-grade bonds. That's why junk bonds are also known, more positively, as high-yield bonds.

junk bond

or

mezzanine debt

colloquial terms used to describe high-interest, high-risk LOAN STOCK which is issued by a company as a means of borrowing money to finance a TAKEOVER BID, MANAGEMENT BUY-OUT, or MANAGEMENT BUY-IN. A so-called leveraged' takeover bid or buy-out involves the company in increasing the proportion of its debt capital to equity capital, that is, increasing its CAPITAL GEARING.

Junk bond/mezzanine debt has come to the fore in recent years to plug the gap between the use of conventional loan finance such as DEBENTURES and the issue of SHARE CAPITAL, and the prices required to be paid for some takeover victims and DIVESTMENTS. Holders of mezzanine debt rank below conventional debt holders in terms of the repayment of loans, for which they receive a higher interest return or some shares in the company, or both. Mezzanine debt is often provided on a bridging loan basis; that is, it is used by a company to finance a takeover which, if successful, is then repaid out of the proceeds of disposing of some of the victim firm's businesses.

junk bond

or

mezzanine debt

colloquial terms used to describe financial securities, such as forms of high-risk, high-interest LOAN CAPITAL, that are issued by a company as a means of borrowing money to finance a TAKEOVER BID or MANAGEMENT BUYOUT.

A so-called ‘leveraged’ takeover bid or buyout involves the company in increasing the proportion of its debt capital to equity capital, that is, increasing its CAPITAL GEARING.

References in periodicals archive ?
While issuance of new junk bonds has fallen behind demand, the 95 deals totaling more than $27 billion made this year are nonetheless a record setting pace.
So far this year, the strategy has worked, with the average junk bond fund registering a 34 percent total return.
The average default rate on junk bonds more than doubled even before the onset of the recession," Dr.
show that the reaction varies across companies with the proportions of assets invested in junk bonds and real estate, and the financial strength of the company.
As junk bonds became increasingly prevalent, they were used to underwrite LBOs and hostile takeovers.
Mr Milken's junk bonds - risky issues that pay a high interest rate - financed the growth of companies that could not get conventional backing.
In an effort to fund further expansion, WOW sold $80 million of junk bonds on June 4, 1987.
Those who criminally abused this new instrument deserve to be just where they are, but the fundamental idea of junk bonds was good.
With respect to returns to investors, junk bonds outpaced all other fixed income markets with the compound average annual return from 1978-1988 totaling 12.
Fairfield's first junk bonds would be issued in 1977 and by 1990 they would total $93 million.
Public worries have largely focused on insurers' investments in high-yield, high-risk junk bonds.