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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
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.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005