You are a merger/acquisition specialist. How would you use junk bonds to facilitate the purchase of a compan

Question

You are a merger/acquisition specialist. How would you use junk bonds to facilitate the purchase of a company.?

Answer 1

Normally, you would use a wide portfolio of junk bonds with high interest rates and get the large dividends as cash. Or, you would get the junk bonds and use them as collateral to secure a loan.

However, with the volatile stock market right now, junk bonds and their high default risk are a little scary.

Answer 2

Essentially you register your own Company with a view to using it to take over the target Company.

In order to raise fiance to purchase the Target, your Company issues high yield Bonds. Since your company has no assets, if will only be possible to pay out on the Bonds if the take over goes ahead.

If the take-over is successful, then you milk the target Company to pay off the bond holders .. in effect the Target Company will have to pay for it's own take over....