Who Issue’s High-Yield Bonds?
First Time Visitor? Welcome
FinancialLearn.com is dedicated to finding great deals, free stuff, and promote frugal living. We are delighted to have you here.
Sound Fun? Have our articles delivered to you via RSS Feed or E-mail to be reminded of new and upcoming contests and articles.
In the financial market, high-yield bonds also referred to junk bonds are based upon an issuer’s ‘investment grade’ rating that is established by large rating companies such as Fitch Ratings. If a company’s ratings is below ‘investment grade’ rating, then these companies must pay higher interest rates to attract and lure investors that will take the risks associated with high-yield bonds and invest in them. If you as an investor are willing to take the risks involved in investing in high-yield bonds you might be wondering who issue’s these bonds. In today’s market, high-yield bonds cover a wide array of needs that covers a broad spectrum for dealers and issuers of these bonds. Because of this the issuers of these bonds are divided into different groups.
There are issuer’s that are considered Rising Stars. These are companies that are in an upstart position or have no credit rating established meaning they have not obtained enough capital that is required to receive and ‘investment grade’ rating. Investing in a Rising Star type company can be risky but it gives an investor the chance to invest in an upstart company before they offer their initial public offerings. Eventually, these companies will have the chance to become a top rated company.
Just as there Rising Stars, there are also companies who were once top rated companies which have been downgraded in ‘investment grade’ ratings. The issuer’s of these high-yield bonds are called Fallen Angels. These companies that were once on the top of their game had fallen on hard times due to market volatility or threats from competitors. To help shore up their financials they look to high-yield bonds where they can stabilize their finances and in turn return to a quality ‘investment grade’ rating.
Companies that are refinancing or have a high debt ration might turn to high-yield bonds to help pay down debt, retire old bonds or consolidate credit at a more attractive rate. These issuers are considered high-debt companies. But paying down credit isn’t the only use of high-yield bonds. Companies can sometimes look to high-yield bonds for capital to fund acquisitions or buyouts and even fend off hostile takeovers.
Some companies need large amounts of capital to upgrade or expand their systems such as Cable and Telephone companies. These issuers are considered capital intensive companies to offset the cost of projects that cannot be paid solely by earnings or bank loans.
Last but not least foreign countries can be issuers of high-yield bonds as they seek capital from foreign markets. Less known than domestic issuers, these issuers have not only market conditions to contend with but also currency exchange and political risks. So these issuers can have a much higher risk when investing than those on the domestic level.
Popularity: 15% [?]
Related Posts
- What Are High-Yield Bonds?
- Understanding the High-Yield Bond Market
- The Different Types of High-Yield Bonds
- The Benefits of High-Yield Bonds
- How to Buy Corporate Bonds
- The Advantages of Municipal Bonds
- Oil Investing- High Risk and High Returns
