junk bond


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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 ?
So in December 1989, when Mike Milken was no longer a phone call away, refinancing $32 million in junk bonds even at a 15 percent interest rate became more than just a formality.
The indictment alleges that the junk-bond market created by Milken ultimately evolved into something like a chain letter - that is, Milken pressured some of his junk-bond clients to buy the junk bonds of other corporations, thus falsely creating the illusion that the market for junk bonds was sounder and more liquid than it really was.
The government's conclusion: "Keating," says a lawsuit filed by the Federal Deposit Insurance Corporation and the Resolution Trust, "purchased or sold junk bonds as directed by the Milken Group"
To me it seems more plausible that the link between the financial revolution of the eighties and the crimes was direct but incidental: The indulgence of junk bond buyers fueled the takeover boom, and the takeovers presented the investment banking advisers with information not available to the market as a whole, and thus with a chance to profit by trading.
During the years 1987-89, PIK and OID bonds accounted for more than 15 percent of new funds raised in the junk bond market (table 1).
Interestingly, Domtar's junk bond issues benefited from a "crossover," in that the company technically didn't have an investment grade profile, but the financial markets gave the offering an opportunity for a lower coupon.
The "barbarians" he envisioned were the junk bond hordes eager to tear down yet another company for the sake of the fees.
Former junk bond king Michael Milken receives an 11th-hour presidential pardon from President Clinton just minutes before Clinton boards a helicopter for his five-minute flight from the White House to his new home in Georgetown.
After those problems are behind us, there may be good values in the junk bond market.
There are those who say that the problems of our big American companies have been brought on or compounded by our tax policies, our national deficit, our inept global commerce program, our hostile tender offer and junk bond binge, our lack of competitiveness vs.
CVPS's credit rating was reduced to junk bond status.
In purchasing Beatrice, Lewis teamed up with Michael Milken, the legendary junk bond king and senior executive of Drexel Burnham Lambert, the maverick investment bank of the '80s.