What is a major feature of high-yield debt?

High-yield debt, often referred to as junk bonds, is characterized by certain features that make it distinct from investment-grade debt. One major feature is that it does not amortize, meaning that the borrower is not required to make periodic repayments of the principal amount throughout the life of the loan. Instead, the entire principal is due at maturity. This structure typically leads to a substantial lump-sum payment at the end of the borrowing period, which can significantly affect the issuer's cash flow and financial strategy.

The nature of high-yield debt is such that it is often issued by companies with lower credit ratings. These companies are viewed as higher risk, which is reflected in the greater interest rates they need to offer to attract investors. Options that describe high-yield debt in different terms, such as having short repayment terms or lower interest rates, do not align with the essential characteristics of this type of debt. Additionally, while some high-yield debt may be secured by collateral, many are unsecured, emphasizing the importance of understanding the nuances of secured versus unsecured financing in leveraged finance.