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junk bond

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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.



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He was also one of the chief busters of the junk bond frauds of the 1980s.
Some purists will object to this overseas resurrection of the junk bond industry's Marconi, pointing out that he is, in the narrow, technical sense of the word, a "crook.
 
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