The following Banking & Finance guidance note Produced in partnership with Freshfields Bruckhaus Deringer LLP provides comprehensive and up to date legal information covering:
Bonds are capital markets instruments representing a form of debt security.
For more information on capital markets and bond issues, see Practice Note: Introduction to the debt capital markets.
High yield bonds, also known as junk bonds or speculative grade bonds, are bonds that generally offer investors higher rates of return than other types of corporate bonds because they are deemed to be riskier investments. High yield bonds are bonds that typically have been rated as sub-investment grade (Ba1/BB+ and below) at issuance by one or more of the major rating agencies (see Practice Note: Credit ratings).
High yield bondholders tend to be institutional investors such as pension funds, insurance companies and investment funds established for the purpose of investing in high yield debt products. The minimum denomination of high yield bonds is typically €100,000.
The high yield bond market has grown rapidly since the late 1970s when Michael Milken, at Drexel Burnham Lambert, and other investment bankers, including at the investment bank Donaldson, Lufkin & Jenrette, created a market for high yield bonds. Prior to that time, high yield bonds were limited to the debt of 'fallen angels'—investment grade companies whose rating had fallen to junk status (hence the name 'junk bonds'). Fallen angels would not issue new debt but
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