junk bond

Fixed-interest loan paying an above average level of interest but with a corresponding above-average level of risk. Junk bonds became popular in the USA during the 1980s economic boom.

Pioneered by US-born bond trader Michael Milken, they were commonly used to raise capital quickly, typically to finance takeovers to be paid for by the sale of assets once the company was acquired. The problem with this strategy was that, following the takeover, the resulting company was so highly geared that its debt repayments eroded any potential profits.