Types of High Yield Instruments
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Types of high yield financing products.
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If we think about financing needs, we can begin to understand the various types of high yield financing products. A rule of thumb and credit is to match the financing need with the appropriate term or length of the loan. In other words, we would not buy a car on a credit card. We would seek a product that matches our expected, useful life of owning or using the car. Same rule applies here. For financing acquisitions, which are long-term assets, we would use products such as term loans, which is another way of saying a loan that is outstanding for a set number of years. Sometimes in private equity deals or smaller middle market deals, the seller or acquiring sponsor provides the financing to complete the deal. In addition to loans, we could issue bonds or notes as they're sometimes called, depending on their duration. Mezzanine finance is another form of financing, although as the name implies, it is usually issued in addition or in between other financing forms, but it also tends to finance longer term assets or growth. And lastly, on the short term side, we have the revolving credit facilities. These are, by nature, meant to finance the day-to-day operations or working capital.