Would you invest in a bond with 2x leverage and a 10% coupon?

Would you invest in a bond with 2x leverage and a 10% coupon?

How would you answer the above question assuming that you can ask for additional information?

4 Comments
 

... I would ask many things. Who the issuer is, credit rating, who took the bond to market, any unusual terms in the OM, what business trajectory is like, etc etc. Also depends on who I am as an investor. Am I a high yield investor looking to support the credit at issue, a deeply distressed investor looking to pick up secondary trades that are cheap on the dollar?

 

Soooooo many parts to this question....

We need to know the Risk Framework for the issuer. Like who the issuer is, what their rating is (S+P/Moodys), what industry are they in (is 2x leverage is this industry the norm? or is it high or low?), what does the bond cost (yield), when does the bond mature? How do we feel about the issuer? do we believe due to the metrics (depends on the industry) that they will pay us back?

Most important, due to all these factors, is 10% a a high or low coupon?

 

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