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 ?
Last year's difficult economy and the fallout from earlier telecommunications and technology excesses pushed the junk bond default rate to a record 15 percent.
The initial sample contains 1,074 junk bond offerings.
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.
Consider: the powerful House Committee on Ways and Means; Panamanian strongman Manuel Noriega; former junk bond king Michael Milken; and many others that you could fill in.
The junk bond market kept expanding, and with it Milken's net worth: In 1987 alone, he earned a whopping $550 million.
Gamer notes that Llama Asset Management dealt primarily with investment grade bonds, but junk bonds were also part of its business.
While the unique characteristics of the junk bond market have motivated investors, policymakers, and researchers to delve further into this intriguing subject, many dimensions of this market remain undiscovered.
(WOW) lost their entire $80 million investment in WOW junk bonds after the corporation filed for bankruptcy on December 21, 1987.
The FDIC also alleges that Hurwitz used USAT to aid Michael Milken's scheme to manipulate the junk bond market.
Americans are very much familiar with the term junk bonds. The bonds which have low rating.
Unfortunately, Schulte ignores the guts of the business--the investments: "We won't spend much time analyzing the Milken-Drexel junk bond saga," he say, since it's been covered by others.
Lincoln, the largest life insurance company in the state and the seventh-largest insurance holding company in the country, follows a policy to invest for 'total return.' Recognizing changes in the underlying value of investments, Lincoln has increased its holdings of Treasury bonds and AAA securities from 17 percent to 43 percent of its portfolio since 1987 and reduced its junk bond holdings.