junk bond


Also found in: Dictionary, Thesaurus, Legal, Idioms, Encyclopedia, Wikipedia.
Related to junk bond: Investment grade bond

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 ?
The investigation of First Executive's transfer of junk bonds may have been anticipated or too specific to the transaction or to the type of investment to have information content for life insurance firms generally.
However, junk bonds do vary in "junkiness," volatility and yields.
Several mutual fund groups actually reported net outflows from junk bond funds in April.
More than $2 billion of new junk bonds were issued in November, and an additional $3 billion of bonds are scheduled to be offered by year-end.
Also summarized in Exhibit 11 are the results of one other recent study of junk bond mortality, by Lucas and Lonski of Moody's [37].
Indeed, even the most casual examination of Lincoln's junk bond purchases reveals a number of Mike Milken's greatest hits, together with some of his biggest dogs.
However, there was some underlying concern among respondents related to the health and performance of the junk bond market.
Some purists will object to this overseas resurrection of the junk bond industry's Marconi, pointing out that he is, in the narrow, technical sense of the word, a "crook.
Much of the space was left empty after the bankruptcy of Integrated Resources, a junk bond firm.
The spiritual center of the financial eighties was Drexel Bumham's annual junk bond sales conference, known as the Predator's Ball.
Issuance of privately placed debt was robust over the last half of the 1980s, despite growth in the public junk bond market, which many believed might supplant the private market.