Skip to Content
Credit Insights

Dividends, Buyouts, and PIKs, Oh My!

Risky transactions in the corporate bond market are staging a comeback.

Mentioned: , , ,

Maybe these aren't exactly the same risks that Dorothy imagined on the yellow brick road, but the riskiest types of transactions in the corporate bond market are staging a comeback as investors continue to reach for yield.

While the credit market isn't quite back to the craziness it experienced back in early 2007, we are seeing more indications of the type of peak-market transactions that will be indicative of the next corporate credit bubble. Over the past few months, we have witnessed an increase in leveraged buyout financing, issuers raising debt to pay cash dividends to their private equity owners, and more recently issuing what are known as PIK toggle notes. While investors typically pick up some additional yield in the short term, which is attractive in a bull market, it comes at a price, as these are the same securities that will trade down first when sentiment turns.

David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.