FINC 322 - Chapter 7 Fallen Angels

FINC 322 - Chapter 7 Fallen Angels - market for...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Fallen Angels Fallen angels  are bonds that were issued with an investment-grade  rating, but, because of the deteriorating finances of the company, the  bonds were downgraded to a BB rating or less. Many of these companies  are near bankruptcy or in default. The key to profiting from fallen angels is  to determine the amount that could be recovered in a liquidation or  reorganization. Prior to 1977, almost all junk bonds were fallen angels, because bonds   were not issued with less than an investment-grade rating . Original Issuers of Junk Bonds—Story Bonds Drexel Burnham Lambert pioneered the marketing of  original-issue junk bonds (Michael Milken) . As junk bond traders, Drexel Burnham Lambert  knew there was a market for fallen angels, so why wouldn't there be a 
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: market for original-issue junk. Although the issuers of original junk bonds must pay a higher yield than on investment-grade bonds, the yield was still lower than what many businesses had to pay for bank loans, if they could get a bank loan at all. Hence, many of these businesses, sometimes referred to as venture-capital situations , growth market or emerging market companies , were willing to issue original-issue junk bonds. In the hope of lowering the yield, these bonds were often sold with optimistic financial projections and a description of how it would be achieved—hence, the nickname, story bonds ....
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern