1. High yield bond Sang Hai

2. Outline • Introduction • History • Issuers • Investors • Structure • Q&A

3. Introduction • Junk Bond, speculative grade bond. High risk – High reward

4. Introduction • Bank loans • High interest rates • Short/Intermediate – term loans • Application denied • Financing options • Long-term debt • Fixed interest rates • Varying payment structures

5. History - Beginning • Began in 1920s, Skyrocketing stock market • Collapsed in 1929, defaulted the low-grade bonds • General Motors, IBM, J. P. Morgan’s U.S. Steel

6. History – Michael Milken • Michael Milken “junk bond king” • Drexel Burnham • Started a high-yield bond trading department – 100% ROI

7. History – 1980s • $31 billion LBO of RJR Nabisco by private equity sponsor Kohlberg Kravis & Roberts in 1989 • LBO - Leveraged Buyout • Hostile takeovers • industries were developed through junk bonds MCI vs AT&T, Texas Air(Texas International Airline)

8. History – 1990s • The downfall of the economy in the late 80s caused many firms to default on their loans • Drexel went into bankruptcy in 1990 $650 million fine in 1989 Unexpected crash of the junk bond market • Milken was sentenced to 10 years in prison for fraud, securities and tax violations

9. Current • U.S. Treasury market $10 trillion • High yield bond $7.8 trillion • Municipal bond $3.7 trillion

10. Issuers Fallen Angel, LBO, Start ups

11. Investors • Insurance companies • Mutual funds • Pension funds

12. Structure • Payment-In-Kind (PIK) • Deferred-Interest • Split Coupon

13. Reference http://www.econlib.org/library/Enc/JunkBonds.html http://en.wikipedia.org/wiki/High-yield_debt http://www.highyieldbond.com/ http://en.wikipedia.org/wiki/Michael_Milken

14. Question “The point has always been to see the assets in the liabilities. To look beyond the debt and see what value really exists and how more can be created.” - Michael R. Milken