Introduction - Leveraged Commentary & Data

Copyright 2007 Standard & Poor s, a division of The McGraw-Hill Companies, Inc. Introduction High-yield bonds are debt securities issued by corporations with lower-than-investment grade ratings. The issuing companies usually are seeking money for growth (via M&A, perhaps), working capital or other cash flow purposes. The non-investment grade ratings lower than BBB- by Standard & Poor s, Baa3 by Moody s and BBB- by Fitch suggest a higher chance of an issuer default, wherein the company does not pay coupon interest or the principal amount due at maturity in a timely manner. Thus, these companies must offer a higher interest rate and in some cases additional investor-friendly structural features to compensate for bondholder risk, and to attract buying interest. Other terms for high-yield, such as speculative-grade and junk bond, have given the asset class some negative connotation over the years, but high-yield has matured into a solid 20% of the overall corporate bond market, which itself is estimated at roughly $5 trillion, larger than both the Treasury market ($4 trillion outstanding) or the municipal bond market ($2 trillion outstanding), according to Bond Market Association estimates.

Copyright 2007 Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. Standard & Poor’s LCD High-Yield Bond Marker Primer Page 2 of 8

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