High-Yield Bond
Definition
A high-yield (junk) bond is a corporate bond rated below investment grade — below BBB− (S&P/Fitch) or Baa3 (Moody's). Issuers pay higher coupons to compensate investors for greater default risk. In LBOs, high-yield notes typically provide the junior debt layer beneath the senior secured loans (as senior unsecured or secured notes).
Typical features versus leveraged loans: fixed-rate coupon, longer tenor (commonly around 7–10 years), no amortization (bullet maturity), call protection (non-call period then a declining call schedule), and incurrence-based covenants only. Loans, by contrast, are floating-rate, prepayable, and senior secured.
High-yield bonds are issued under an indenture, often sold via Rule 144A offerings, and trade in the secondary market; yields are quoted as a spread over Treasuries.
Why interviewers ask
"Compare a leveraged loan to a high-yield bond" is one of the most common leveraged finance and capital markets interview questions — the expected answer covers rate type, security, tenor, amortization, callability, and covenant style.
Related terms
Interviews don't test definitions — they test recall under pressure.
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