first, what does Junk Bond mean?
junk bond English [dk b? Nd] America [dkb ɑ nd]
n. worthless bonds, junk bonds; Post-insurance bonds, bonds with low prices but high risks;
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plural: junk bond
junk bonds (junkbonds; Junk), also known as high-risk bonds. Bonds issued by companies with credit rating below BBB of Standard & Poor's or Baa of Moody's. Junk bonds provide investors with higher interest income than other debt instruments, so junk bonds are also called high yield bonds, but the risk of investing in junk bonds is also higher than that of investing in other bonds. Second, what is junk bond and what are its advantages and disadvantages/bonds
junk bond (junk bond; Junk), also known as high-risk bonds.
bonds issued by companies with credit rating below BBB of Standard & Poor's or Baa of Moody's. Junk bonds provide investors with higher interest income than other debt instruments, so junk bonds are also called high yield bonds, but the risk of investing in junk bonds is also higher than that of investing in other bonds.
junk bonds were popular in the United States in the 198s, mainly for the following reasons: First, the early 198s was a period of large-scale industrial adjustment and reorganization in the United States, which caused that the funds needed for renewal and mergers and acquisitions were far from enough. In addition, during the period of industrial adjustment, these enterprises were at greater risk, and commercial banks for profit could not fully meet their capital needs, which was an important background for junk bonds to rise in time. Second, the relaxation of financial control in the United States, reflected in the securities market, is to relax the examination and management of securities issuers, resulting in the emergence of low-quality junk bonds.
thirdly, leveraged buyouts are widely used, that is, small companies acquire larger companies through high debt. The channel of high debt is mainly to borrow money from commercial banks and issue bonds. After raising enough funds, they will acquire a large number of shares of large companies that are not optimistic but have low stock prices and gain control, and then split and sort them out, so as to improve the company's image and improve the operating conditions reflected in the financial report. After the stock price rises to a certain extent, they will all sell off and make a big profit, and after paying off their debts, they will leave.
The most famous example is that at the end of 1988, Henry Clays bought Renault Tobacco Company, and the purchase price was as high as $25 billion. However, Clays used only $15 million, and the remaining 99.94% was raised by issuing junk bonds by Milken. Fourth, after the 198s, the American economy stepped into recovery, and the economic boom made the securities market more prosperous.
In the period of sustained economic prosperity, people have a bright future, paying more attention to its high returns and ignoring risks. Commercial banks, securities underwriters and many speculators are all flocking to it, and acquirers, acquirers, bondholders, issuers and underwriters are all profitable. Huge junk bonds, like big bubbles blown up, will burst one day.
Due to the declining quality of bonds and the pressure of potential bear market after the stock market crash in 1987, since 1988, the issuing companies have been unable to pay high interest, and it is difficult for junk bonds to overcome "high risk->: High interest rate-> High burden-> High arrears-> Higher risk ... "The vicious circle, gradually towards recession. Although junk bonds have played a positive role in the American economy in the past ten years, raising hundreds of billions of hot money, causing a large inflow of funds from Japan and other countries, and making American enterprises deliberately seek innovation and improve management under the oppression of strong external forces, they have also left behind serious consequences, including the bankruptcy of the savings and credit industry, the vicious development of leveraged buyouts, the serious chaos in the bond market and the increase of financial crimes. Third, what is junk bond and what are its advantages and disadvantages/bonds
Junk bond (junk bond; Junk), also known as high-risk bonds. Bonds issued by companies with credit rating below BBB of Standard & Poor's or Baa of Moody's. Junk bonds provide investors with higher interest income than other debt instruments, so junk bonds are also called high yield bonds, but the risk of investing in junk bonds is also higher than that of investing in other bonds.
junk bonds were popular in the United States in the 198s, mainly for the following reasons:
First, the early 198s was a period of large-scale industrial adjustment and reorganization in the United States, which caused that the funds needed for renewal and mergers and acquisitions were far from enough. In addition, during the period of industrial adjustment, these enterprises were at greater risk, and commercial banks for profit could not fully meet their capital needs, which was an important background for junk bonds to rise from time to time.
the second is the relaxation of financial regulation in the United States, which is reflected in the securities market, that is, the relaxation of the examination and management of securities issuers, resulting in the emergence of low-quality junk bonds.
thirdly, leveraged buyouts are widely used, that is, small companies acquire larger companies through high debt. The channel of high debt is mainly to borrow money from commercial banks and issue bonds. After raising enough funds, they will acquire a large number of shares of large companies that are not optimistic but have low stock prices and gain control, and then split and sort them out, so as to improve the company's image and improve the operating conditions reflected in the financial report. After the stock price rises to a certain extent, they will all sell off and make a big profit, and after paying off their debts, they will leave. One of the most famous examples is that at the end of 1988, Henry Clays acquired Renault Tobacco Company with a purchase price as high as $25 billion, but Clays used only $15 million, and the remaining 99.94% of the funds were raised by Milken's issuance of junk bonds.
Fourth, after the 198s, the American economy stepped into recovery, and the economic boom made the securities market more prosperous. In the period of sustained economic prosperity, people have a bright future, paying more attention to its high returns and ignoring risks. Commercial banks, securities underwriters and many speculators are all flocking to it, and acquirers, acquirers, bondholders, issuers and underwriters are all profitable.
Huge junk bonds are like big bubbles that are blown up, and they will burst one day. Due to the declining quality of bonds and the pressure of the potential bear market after the stock market crash in 1987, since 1988, the situation that issuing companies cannot pay high interest has occurred frequently, and it is difficult for junk bonds to overcome "high risk->; High interest rate-> High burden-> High arrears-> Higher risk ... "The vicious circle, gradually towards recession.
Although junk bonds have been popular in the United States for ten years, they have played a positive role in the American economy, raised hundreds of billions of hot money, caused a large inflow of funds from Japan and other countries, and made American enterprises deliberately seek innovation and improve management under the oppression of strong external forces, but they have also left behind serious consequences, including the bankruptcy of the savings and credit industry, the vicious development of leveraged buyouts, the serious chaos in the bond market and the increase in financial crimes. Fourth, how to pronounce
junk[ English ][dk] [American ][dk]
new words
concise interpretation
n. Waste items, junk; Chinese flat-bottomed sailboat; Cheap goods, fakes; Nonsense, cajole
vt. discard, abandon; Divide ... into blocks
plural: junks third person singular: junks past tense: junked past participle: junked present participle: junking
confusing words: junks
The following results are provided by Kingsoft
Collins advanced English-Chinese dictionary with antonyms
1.N-UNCOUNT waste; Junk is old and used goods that have little value and that you do not want any more.
Rose Finds her furniture in junkshops.
Rose bought furniture from a thrift store.
What are you going to do with all that junk, Larry? V. What is a long-term bond
Generally speaking, the characteristics of long-term bonds are long-term bonds with a repayment period of 1 years. 1. Repayable long-term bonds have a specified period of time, and enterprises must return the principal to the bondholders at the agreed time to redeem the bonds.
2. liquid long-term bonds have the ability to be transferred and realized. No matter whether the bond is due or not, the bondholder can transfer and realize it at any time if he is in urgent need of funds. When the bond transfer is completed, the bond rights will also be transferred.
therefore, long-term bonds are highly liquid. 3. Safe long-term bonds have the ability to avoid the risk of value loss caused by market price fluctuations.
the income of bondholders is stable, safe and reliable. 4. Profitable long-term bonds are direct investments made by bondholders to bond issuers. No intermediate profits will be generated, and bondholders can receive certain interest income regularly or at maturity according to the pre-specified interest rate, and the income is generally higher than the interest income of savings deposits in the same period.
Types of long-term bonds Long-term bonds can be divided into unsecured bonds and secured (asset-backed) bonds. Unsecured bonds mainly include credit bonds, subordinated bonds and income bonds.
mortgage bonds are the most common long-term guarantee bonds. Credit bonds Credit bonds usually refer to unsecured bonds of companies.
Credit bonds are not secured by any company property, so when the company is liquidated, the holders of credit bonds are ordinary creditors of the company. The profitability of enterprises is the main guarantee for these bond investors.
although the credit bonds are unsecured, their holdings can protect their own interests by adding restrictive clauses in the bond contract, especially the negative guarantee clauses to prevent enterprises from providing mortgages to other creditors with their (unsecured) assets. These provisions make it impossible for borrowing enterprises to limit the use of their assets, thus protecting investors.
because the holders of credit bonds must rely on the general credit of borrowers to repay the principal and pay interest, usually only companies with strong strength and reliable credit can issue credit bonds. Subordinated bonds Subordinated bonds are unsecured bonds whose claim to corporate assets is second only to other bonds.
when an enterprise is liquidated, the holders of subordinated bonds usually have the right to demand repayment only after other high-level creditors have been paid in full. Of course, the rights and interests of the holders of subordinated bonds are still ahead of the shareholders of preferred shares and common shares in liquidation.
the existence of subordinated bonds is beneficial to the holders of senior bonds, because they can encroach on the interests of the holders of subordinated bonds. For example, suppose that the company's liquidation value is $6,, the non-negotiable bonds is $4,, the subordinated bonds are $4,, and the ordinary debt is $4,.
People may think that holders of non-negotiable bonds have the same status as ordinary creditors, and both have the priority to claim the assets in liquidation, that is, they each get $3,. In fact, the law stipulates that holders of non-negotiable bonds have the right to use the claim of holders of subordinated bonds.
therefore, the total claim of holders of non-negotiable bonds is $8,. Therefore, 2/3 (US$ 8,/US$ 1,2,) of liquidation value belongs to non-negotiable bonds holders, while only 1/3 (US$ 4,/US$ 1,2,) belongs to ordinary creditors.
due to the above characteristics of claim right, enterprises have to offer higher yield than ordinary bonds in order to attract investors when issuing subordinated bonds. Subordinated bonds can often be converted into common stock.
Therefore, the additional option features may cause convertible subordinated bonds to be issued at a lower yield than ordinary bonds. Income bond companies only pay interest on income bonds when there is a surplus.
unpaid interest in a certain year can be accumulated. If the company is profitable in future years, it must pay the accumulated unpaid interest within the scope permitted by the surplus.
of course, the obligation to accumulate unpaid interest is usually limited to no more than 3 years. This kind of securities promises to pay investors a fixed rate of return, but its reliability is low.
Nevertheless, income bonds still have priority over subordinated bonds, preferred stocks and common stocks. Unlike preferred stocks, interest payments on income bonds can be deducted before tax.
Income bonds are not attractive to investors, so they are mainly issued when enterprises are reorganized. Junk bonds developed an active non-investment grade bond market in 198s.
These bonds are all Ba-rated (Moody's) or below, and are called "junk bonds" or "high-yield bonds". Junk bonds market was cultivated by Drexel Burnham Lambert Investment Bank, which dominated the market until Drexel Bank went bankrupt in 199.
many companies raise hundreds of millions of dollars through the junk bond market to repay the money previously obtained from banks or private placements. In addition, junk bonds are also used for corporate mergers and acquisitions and leveraged buyouts.
The main investors of junk bonds are pension funds, high-yield bonds, mutual funds and some individuals who invest directly. Although there is a secondary market for junk bonds, the liquidity of junk bonds will be lost when there is any financial panic in the bond market or when investors turn to the quality of bonds.
in the late 198s, the issuance of bonds related to leveraged buyouts went through a difficult period, and a large number of bonds defaulted. Investors lost confidence in it, and the issuance of new bonds plummeted.
The junk bond market recovered after the early 199s, especially the issuance of higher quality bonds. Although junk bonds are a feasible way to raise funds for some companies, it must be recognized that this opportunity is very uncertain and it is difficult to find investors in an unstable market.
mortgage bond is a bond secured by the lien (creditor's claim) of a company's specific assets (usually fixed assets). The specific property as bond collateral will be detailed in the mortgage contract, which is a legal document that gives bondholders a lien on assets. Like other secured loan agreements, the market value of collateral should be higher than the total amount of bonds issued, so as to maintain a reasonable margin of safety.
if the company violates any restriction clause in the bond contract, it represents the interests of the bondholders.