Investment-grade bonds and high yield cross-overs
Produced in partnership with Christopher J. Capuzzi and Simone Bono of Freshfields
Investment-grade bonds and high yield cross-overs

The following Banking & Finance guidance note Produced in partnership with Christopher J. Capuzzi and Simone Bono of Freshfields provides comprehensive and up to date legal information covering:

  • Investment-grade bonds and high yield cross-overs
  • What are investment-grade and high yield bonds?
  • What are the yields on investment-grade and high yield bonds?
  • Covenants
  • Maturity of the bonds
  • Guarantees
  • Registration
  • What are high yield cross-over bonds?

BREXIT: The UK is leaving the EU on Exit Day (as defined in the European Union (Withdrawal) Act 2018). This has an impact on this Practice Note. For guidance, see Practice Note: Brexit—impact on finance transactions—Brexit planning and impact—key issues for debt capital markets transactions and Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs.

What are investment-grade and high yield bonds?

Investment grade (IG) bonds refer to debt securities that carry an IG rating, which is anywhere from BBB- and higher on the S&P and Fitch scales and Baa3 and higher on the Moody’s scale (for more information on credit ratings see Practice Note: Credit ratings). IG issuers are typically large blue-chip corporates and companies whose equity securities are listed on a major stock exchange. Other than sovereign debt of developed economies, which are not subject to credit ratings, IG securities are frequently seen as one of the safest types of income producing investments. However, because IG bonds are considered safe investments, the yields are lower than those of high yield (HY) bonds. Many institutional investors and pension funds have policies and mandates that require them to limit their bond investing to IG bonds or government obligations.

HY bonds are debt obligations of issuers that carry a rating that is below IG rating. HY issuers may