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High Yield Bond Questions

1. Are High Yield (formerly referred to as "Junk") Bonds necessarily a bad investment? On what would this depend?

2. What is the financial impact on a company when their debt rating is viewed as "High Yield"?

3. What specific steps must a firm undertake to improve their credit rating under the current rating system?

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1.) High Yield Bonds are high paying bonds with lower credit rating. Usually the credit rating is lower than investment grade bonds. Since the risk of default is high, these bonds pay a higher rate than high rated bonds. For example, if a bond carries a rating below BBB from S&P, it is junk bond. The lower the rating, the higher the yield you get. For instance, if a bond has a rating of C it has a high risk of default and the yields will be relatively high.

These are not bad investments because the yield is commensurate with the risk of default. From another perspective the bonds of several reputed companies may fall into High ...

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