© 2000 John Petroff
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© 2000 John Petroff |
This term initially (i.e. starting in the late 1970's and early 1980's) referred to bonds used by management in leverage buy-outs: little equity was used to acquire a company that subsequently would be restructured by disposing some of its assets to pay back the bond. Because of the risk involved, yields on such bonds were considerably higher than ordinary corporate bonds: in the order of 5 to 10% higher. Most of the leverage buy-outs did not go sour as feared, and the negative connotation may have not been deserved. Today, leverage buy-outs are still demanding high yield. But the term as been extended to many other types of high yield and high risk bonds.
See review questions Q-12D5.1 and Q-12D5.2.
See research assignment R-12D5.1.
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