Special Considerations of High-Yield Debt

A firm has issued debt which is now considered high-yield debt. Relative to the industry, this firm has a high percentage of capital from equity, low free cash flow, and a CCC- debt rating. The _most uncharacteristic_ attribute of this firm relative to other high-yield debt issuers is the:

Incorrect. This is a low debt rating and not atypical for high-yield debt.

Incorrect. Low or even negative free cash flow is a common feature for firms with high-yield debt.

Correct! While it is common for high-yield debt issuers to have a CCC- debt rating and low (even negative) free cash flow, the relatively high percentage of the firm's capital structure coming from equity is surprising. Most high-yield debt issuers have a high percentage of capital coming from debt, which would mandate a relatively low percentage coming from equity.

CCC- debt rating.

low free cash flow.

high percentage of capital from equity.