HIGH YIELD BOND Sang Hai. Outline Introduction History Issuers Investors Structure Q&A.
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Transcript of HIGH YIELD BOND Sang Hai. Outline Introduction History Issuers Investors Structure Q&A.
Introduction
Bank loans• High interest rates• Short/Intermediate – term loans• Application denied
Financing options• Long-term debt• Fixed interest rates• Varying payment structures
History - Beginning
Began in 1920s, Skyrocketing stock market
Collapsed in 1929, defaulted the low-grade bonds
General Motors, IBM, J. P. Morgan’s U.S. Steel
History – Michael Milken
Michael Milken “junk bond king”
Drexel Burnham
Started a high-yield bond trading department – 100% ROI
History – 1980s
$31 billion LBO of RJR Nabisco by private equity sponsor Kohlberg Kravis & Roberts in 1989
LBO - Leveraged Buyout
Hostile takeovers
industries were developed through junk bondsMCI vs AT&T, Texas Air(Texas International
Airline)
History – 1990s
The downfall of the economy in the late 80s caused many firms to default on their loans
Drexel went into bankruptcy in 1990$650 million fine in 1989 Unexpected crash of the junk bond market
Milken was sentenced to 10 years in prison for fraud, securities and tax violations
Current
U.S. Treasury market $10 trillion High yield bond $7.8 trillion Municipal bond $3.7 trillion
Reference
http://www.econlib.org/library/Enc/JunkBonds.html
http://en.wikipedia.org/wiki/High-yield_debt
http://www.highyieldbond.com/
http://en.wikipedia.org/wiki/Michael_Milken