issue bonds to rebuy stocks
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An insurance company purchased bonds issued by XYZ Company two years ago. Today, XYZ Company has begun to issue junk bonds and is using the funds to repurchase most of its existing stock. Why might the market value of those bonds held by the insurance company be affected by this action?
Please answer directly and in simple terms, I am trying to understand this stuff.
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Solution Summary
XYZ Company issued bonds 2 years ago. It does not matter at what price, etc. But we do know that whenever a company issues bonds, it is ..........
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I will try to explain this to you in simple terms, as a concept:
XYZ Company issued bonds 2 years ago. It does not matter at what price, etc. But we do know that whenever a company issues bonds, it is increasing its debt and, thereby, it's interest payments, which will affect cash flow, etc. So, XYZ Company has increased its debt and now it wants to issue junk bonds to repurchase its existing stock. By this statement we know that its credit rating has been lowered, possibly because of what I wrote above. It's previous debt ...
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