Trash Debentures

The trash bonds or debentures began to become evident in the eighties inside the environment of the liabilities and of the financial debts of societies.

Drexel Yournham & Co. Inc., now in bankruptcy as a consequence of the scandal Milken.Boesky, was the pioneers in the use of trash debentures for financing the fusion and buying of companies.

The trash debentures own their name to the low qualifications that Moody’s and Standard & Poor?s gives them. Sometimes of “BB” or even lower. The most used method for financing the buying of companies was to use as a guarantee for the trash debentures on sale, the assets of the same society that was going to be acquired, the low qualifications of these debentures was a logical consequence of the fact that the new company had much debts and by the uncertainty that existed on the payment of interests.

In fact, the interests of many trash debentures are paid “in kind”, not in cash. Although, in one side, there exists the disadvantage that the risk of these debentures are higher than those other better qualified, and on the other side, we have to acknowledge that its profitability could be higher.

The universe of the securities with high returns is big and variable in quality. The best that individual investors can do is to maintain a diversify security portfolio, which requires a through study, or to apply to an investment mutual fund.