Module III· DCM — High Yield & HybridBasic
Question
What is a high-yield bond, and which issuers typically use it?
Answer
What
A high-yield bond is a bond rated BB+ / Ba1 or below. It is also called speculative grade.
Typical issuers
- Sponsor-backed LBO companies
- Fallen angels that lost investment-grade status
- Growth companies with stable cash flow but leveraged balance sheets
- Cyclical or smaller issuers without IG metrics
- Distressed or post-restructuring companies
Pricing
HY investors demand higher spreads for default risk, weaker covenants, lower liquidity, and lower recovery prospects. EUR high yield is smaller and often less liquid than the US HY market.
Interview point
HY analysis is about cash-flow durability, leverage, covenants, recovery, and refinancing risk, not just coupon level.