High Yield Bonds - Oregon State University：高收益债券-俄勒冈州立大学.pptVIP

High Yield Bonds Xiong Xiao Agenda What is high yield bonds? The history of high yield bonds Characteristics and structures of high yield bonds Importance of high yield bonds to corporate finance Summary High yield bond Bonds issued by low credits rating company Junk bonds or Noninvestment-rated bond or Speculative grade bond Normally issuers’ rating is lower than BBB(SP) or Baa(Moody’s) High default risk and high return Downgraded bonds Leveraged buyout/recapitalization Fallen Angels Bond rating system History High yield bonds began in 1920’s~1930’s Early issuers: IBM, General Motors etc. Late 1970’s-1980’s the golden period of high yield bonds Government deregulation (Liberal economic policies) Industry restructuring and reforming caused a huge wave of merger and acquisition Leveraged buyouts Michael Milken Junk bond king Believes that the rewards of HYB outweighedthe default probabilities Drexel Burnham Lambert Investment bank Hostile takeover Milken’s success sours Dedicated to education industry Prostate Cancer Foundation . 1984-1985the new issued high yield bonds were worth $14 billion and accounted for 22% of total corporate bond issued 1989-1990 the default rate of company increased rapidly due to economic downturn and excessive speculation. The high yield bonds market shrinked rapidly After 1991, high yield bonds market began to mature. Less speculative merger or acquisition, more capitalization and refinancing History Cont. History Cont. In 2011, high yield bonds account for more than $1 trillion Characteristics The lower credit rating the higher default rate and credit spread Average default rate (1994-2007) Average credit spread (1998-2007) Characteristics The lower credit rating the higher yield to maturity Junk Bonds Characteristics Return and risk are between treasury bond and stock Structures Three types of deferred coupon structures: Deferred-interest bonds Bonds sold at a deep discount and do not pay interest for an initial