High Yield Bonds

1
High Yield Bonds

• By
• Hillary Seiler
• Kevin Thorpe

2
High Yield Bonds

• Bond
• An agreement between and issuer and a lender for
  repayment of funds over time with interest.
• Junk bond ?
• A bond that has received a rating of
  non-investment grade.
• http//www.bondsonline.com/Bond_Ratings_Definition
  s.php

3
High Yield Bonds

• Why use high yield bonds Company
• Cost of Capital
• Financing activities
• Why use high yield bonds - Investor
• Risk and return

4
Question

• Who is the King of junk bonds?
• A.) Warren Buffet
• B.) Raymond Brooks
• C.) Michael Milken
• D.) Milton Friedman

5
Michael Milken

• Druxel Burnam
• Recognizing junk bonds correlation with defaults

6
Michael Milken

• How he helped create the market
• Acquisitions and mergers
• Supply and demand

7
Question

• According to Guinness book of world records, the
  largest fine ever paid by an individual belongs
  to?
• A.) O.J. Simpson
• B.) Michael Milken
• C.) Kenneth Lay
• D.) Michael Jackson

8
Question

• How much was the approximate total for all fines?
• A.) 20,000,000
• B.) 100,000,000
• C.) 50,000,000
• D.) 1,000,000,000

9
History of Junk Bonds

• 1971
• Floating vs Fixed Exchange Rates
• Dissolution of the Bretton Woods System
• Oil crisis
• 1977
• Oil companies on the verge of filing for
  bankruptcy

10
History of Junk Bonds

• 1980s
• Mergers and takeovers
• Extensive growth in the junk bond market
• 1990s
• Shift in the use of junk bonds

11
Bond Ratings

• Companies- SP, Moodys, and Fitch
• Components that make up the ratings
• Interest coverage ratio
• Debt to equity ratio
• Current ratio

12
Bond Ratings

• The purpose of a rating is to measure the
  companys default risk
• Represented through higher yields aka the
  default spread.
• example on board

13
Current Market

• Increased Market Volatility
• Measurement of risk associated with the yield
  spread, has widened.
• Example of a Ba1 non-investment grade bond.

14
Current Market
15
You Are Now Enlightened