JUNK BOND NOUN (BUSINESS WORLD)

In financial jargon (especially in the US): a bond bearing high interest but deemed to be a very risky investment, issued by a company seeking to raise a large amount of capital quickly (for example, in order to finance a take-over); a type of mezzanine finance. Etymology: Formed by compounding: the bond is dismissively called junk ('rubbish') because of doubt over the issuing company's ability to pay the interest from income generated by the assets purchased. History and Usage: The concept of the junk bond arose in the US in the mid seventies. It became a particularly prominent feature of corporate finance there from the early eighties, associated especially with Michael Milken of investment bankers Drexel Burnham Lambert and with the whole financial ethos of leveraged buyouts (see leverage and buyout), mezzanine finance, and corporate 'raiders'. Debt incurred through the issuing of junk bonds is known as junk debt; finance based on them is junk finance. Mr. Milken told them it was time for some companies to de-leverage, urging many companies to swap their junk debt for a combination of equity and higher-grade debt. Wall Street Journal 18 Sept. 1989, p. 1 As Drexel Burnham fell, two warring junk-bond titans scrambled for their payoffs. Vanity Fair May 1990, p. 50 To Giuliani, the junk-bond monger's offense was to undermine the apparent 'integrity of the marketplace'. If people don't believe in this integrity, Giuliani said, they won't participate in the 'capital-formation system'. Nation 17 Dec. 1990, p. 755