What Are High-Yield Bonds?
Our Skilled Securities Fraud Law Firm Can Help If You Have Suffered Junk Bond Losses
High-yield bonds, also known as junk bonds, are non-investment grade bonds. They are usually put out by issuers that have been given a low rating by credit rating agencies and are considered at risk of not paying interest or giving back an investor’s principal upon maturity. Examples of potential issuers are former investment-grade companies that are in financial trouble or are too highly leveraged and emerging companies looking for working capital to help with expansion.
A junk bond can also be what is referred to as a fallen angel, which is a bond that once had an investment-grade rating but now has been downgraded to junk bond status because of financial woes involving the issuer. Or, it can be a rising star bond, with a rating that has started to go up because the issuer’s credit quality has gotten better.
A high-yield bond will usually offer a higher yield than bonds with a greater credit rating and perhaps even offer a higher coupon rate to get investors to take on this additional risk. High-yield bonds are debt securities that typically pay greater interest rates due to their low credit ratings.
The risk of default on the principal and the interest is higher for this type of bond compared to investment-grade bonds. There is also the credit risk should the issuer’s creditworthiness drop further. Bonds that are less creditworthy have a greater chance of defaulting on principal repayment or interest payments.
High-yield bond prices are at risk of becoming substantially more volatile than investment-grade bonds. Should market interest rates go up, a bond’s price can go down.
High-yield bonds are also at greater risk of exercising their call provisions, which can be redeemed or paid at the discretion of the issuer before maturity. This means that if a company’s credit rating or financial condition gets better, the issuer may be able to redeem its outstanding bonds and avail of lower funding rates.
These bonds are known to be illiquid. They are also vulnerable to outside events, which is why many of them were heavily impacted in 2020 when the COVID-19 pandemic struck.
How Can Our Securities Fraud Law Firm Help Investors?
Junk bonds are generally unsuitable for most retail customers and older conservative retirees. The majority of investors don’t directly invest in junk bonds. What often ends up happening is that they will invest in a high-yield bond fund, also known as a junk bond fund.
Unfortunately, many inexperienced and unsophisticated investors end up investing in these high-yield bond funds because their broker unsuitably recommended and marketed this investment to them. This can lead to significant investor losses that can be hard to recover from.
Most recently, in 2022, thousands of retail investors in the high-yield junk bonds issued by GWG Holdings are now finding that not only did they sustain financial losses but also they may have been victims of an alleged $1.6B Ponzi scam. Considering that more than 140 regional brokerage firms promoted GWG L Bonds to customers, due diligence failures, and broker negligence may have been factors. This is why our junk bond fraud attorneys have already filed dozens of Financial Industry Regulatory Authority (FINRA) lawsuits against many of these firms on behalf of investors.
But a junk bond doesn’t have to be fraudulent for there to be grounds for pursuing damages from a brokerage firm. Other reasons for filing a FINRA lawsuit against a broker-dealer over high-yield junk bond losses.
- Misrepresentations and omissions in which the financial advisor genuinely didn’t understand the investment and, therefore, was unable to provide the investor with a solid understanding of the risks.
- Overconcentrating a client’s account with too many bonds, increased their losses when the junk bonds declined further.
- A brokerage firm failed to properly supervise its broker and the activity in your brokerage account.
- Breach of contract.
High-yield junk bonds tend to offer brokerage firms high commissions and fees. This can be an incentive for a broker to unsuitably market this investment to customers.
Not only can Shepherd Smith Edwards and Kantas help you explore your legal options, but if we determine that your brokerage firm played a part in your junk bond losses, we can file your claim for you and represent you in FINRA arbitration. Our FINRA lawyers have helped investors throughout the US, as well as foreign nationals who worked with US-based broker-dealers, in holding these firms accountable and liable for the damages they owe customers.
We are a skilled and experienced securities fraud law firm dedicated to fighting for investors like you. In our more than 30 years in business, we have recovered many millions of dollars for our clients through arbitration, mediation, and litigation. We are zealous advocates for investor rights and protections.
When you hire with us, you are working with not just one attorney but an entire Securities Fraud Law Firm and staff that are here to fight for you.
Call (800) 259-9010 to request your free, no-obligation case assessment.