When you have savings and want to invest the money, besides the stock market you look at returns on interest rate vehicles. As a saving you have something somebody is looking for – money and what rate of return would you take to allow them the use of it. As a saver, you are at the top of the food chain and at the bottom are the people who can not save and need to use high cost money mart type of chains. As a saver, you would not want to take a loan, but the companies do serve people in the market place. Take the same way of thinking to the corporate market, ideally treasurers save money and have A and BBB ratings. The interest rate will be closer to prime or what the Federal Reserve charges the banks. But some companies do not have savings, but they could and they are in the junk bond or pay higher interest rates.
In an article from the New York Times News Service, in the middle week of August, companies raised $4.1 billion in junk bonds. That total was higher than the total offerings in July. One of the companies which raised money was Royal Caribbean Cruises which raised $1.25 billion at 11.63%. If you ever cruised with Royal Caribbean, watch out for fees, they need to raise money to pay their debts.
Royal Caribbean is using some of the money to pay back debt it raised in 2012. At that time, Royal Caribbean raised $650 million at 5.25%.
Linking to dividend paying stocks, all companies will go to the bond market for companies have lots of reasons to use the money. Chief Financial Officers are always examining when they raise money is it better to raise with equity or bonds? As a investor you can easily determine what the rating is on the debt of the company. The higher the rating, the lower the investment world sees as a risk. There are many funds which do not invest in low rating companies, you can have the same standard for the rule of investing is try not to lose your money.
There are more questions than answers, till the next time – to raising questions.