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 ?
But greater return also means greater risk, especially with junk bonds, where the risk of default is relatively high.
A Junk bonds are actually corporate bonds that offer higher returns but with more risk attached.
As a result US investors have sought higher returns by investing in junk bonds in such huge volumes that yields on junk bonds have been reduced by a third since October 2002.
They would finance the takeover by issuing junk bonds. These were risky bonds that paid interest rates as high as 17%.
We use a flexible econometric method, the Cox proportional hazard, to model the default behavior of junk bonds over their life.
However, junk bonds do vary in "junkiness," volatility and yields.
Not only did this reduce the number of independent securities firms, but it expanded those banks' product lines and made a relationship banking strategy more viable than ever before, A perfect example is BankAmerica, which finished 2001 with high league-table rankings in both high-grade and junk bonds, convertible securities and syndicated loans.
With junk bonds and mezzanine financing becoming less viable financing options, net leasing is becoming an increasingly popular way for companies - especially those with "less-than-stellar" credit histories - to raise cash.
The rise came despite another cut in Marconi's junk bonds by Standard & Poor's which affirmed Marconi's corporate credit ratings at BB/B.
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.
The added interest in Conseco's bonds have raised the price so much that "you can't really call them junk bonds anymore," Lubbers said.
* Milken didn't invent junk bonds. They go back centuries.