1. High yield bond
Sang Hai

2. Outline
Introduction
History
Issuers
Investors
Structure
Q&A

3. Introduction High risk – High reward
Junk Bond, speculative grade bond.
High risk – High reward

4. Introduction Bank loans Financing options High interest rates
Short/Intermediate – term loans
Application denied
Financing options
Long-term debt
Fixed interest rates
Varying payment structures

5. 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

6. History – Michael Milken
“junk bond king”
Drexel Burnham
Started a high-yield bond trading department – 100% ROI

7. 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 bonds
MCI vs AT&T, Texas Air(Texas International Airline)

8. 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

9. Current U.S. Treasury market $10 trillion
High yield bond $7.8 trillion
Municipal bond $3.7 trillion

10. Issuers
Fallen Angel, LBO, Start ups

11. Investors
Insurance companies
Mutual funds
Pension funds

12. Structure
Payment-In-Kind (PIK)
Deferred-Interest
Split Coupon

13. Reference http://www.econlib.org/library/Enc/JunkBonds.html

14. Question
“The point has always been to see the assets in the liabilities. To look beyond the debt and see what value really exists and how more can be created.”
- Michael R. Milken