Compensation Glossary

Junk Bonds

Bonds that are initially issued as low-quality securities, often in conjunction with takeovers, leveraged buyouts and restructurings. They offer high interest and high risk. These securities generally lack the characteristics of a desirable investment. The rights of the bondholder are subordinated to senior debt holders. Assurance of interest and principal payments in the future is limited. Repayment often depends on asset sales rather than on the ongoing profitability of the business.