Abstract

http://ssrn.com/abstract=10443
 


 



High-Yield ('Junk') Bonds As Investments and As Financial Tools


William A. Klein


University of California, Los Angeles (UCLA) - School of Law


Cardozo Law Review, Vol. 19, No. 2 (1997) (Symposium on the Essays of Warren Buffett).

Abstract:     
High-yield ("junk") bonds acquired a bad name when used in the late 1980s to finance takeover transactions that left target corporations with an excessive risk of insolvency. The tarnished reputation of these instruments is largely unde- served. High-yield bonds have proved useful, as an alterna- tive to bank and other forms of financing, for "emerging" firms. Their use, as opposed to new equity financing, should be taken as a signal of optimism. Excessive debt may create perverse incentives and a high risk of insolvency with its attendant costs, but these problems should be attributed to faulty regulation or to the infirmities of our system for insolvency reorganization. If options can be thought of as junior (subordinated) equity, high-yield bonds can be thought of as senior equity. If we can tolerate the riskiness of common stock and of options, we should have no difficulty with the riskiness of high-yield bonds.

JEL Classification: G32

Accepted Paper Series





Not Available For Download

Date posted: May 12, 1997  

Suggested Citation

Klein, William A., High-Yield ('Junk') Bonds As Investments and As Financial Tools. Cardozo Law Review, Vol. 19, No. 2 (1997) (Symposium on the Essays of Warren Buffett).. Available at SSRN: http://ssrn.com/abstract=10443

Contact Information

William A. Klein (Contact Author)
University of California, Los Angeles (UCLA) - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-825-1485 (Phone)
310-825-6023 (Fax)
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