Which statement describes amortization differences between bank debt and high-yield debt?

Which statement describes amortization differences between bank debt and high-yield debt?

• A. Bank debt is usually amortized; high-yield debt is bullet at maturity.
• B. Bank debt is bullet; high-yield debt is amortized.
• C. Both are amortized.
• D. Neither is amortized.

Answer: (A)

Bank debt is typically amortized over the term, meaning principal is paid down in regular installments along with interest. This gradual repayment reduces the outstanding balance over time, which lowers risk for lenders and aligns with the shorter, more secured nature of bank facilities. High-yield debt, on the other hand, is usually issued as a bullet at maturity, with most or all of the principal due in one lump sum at the end, while interest is paid periodically. This structure preserves cash flow for the borrower in the early years and compensates investors for higher risk with a higher coupon. There are exceptions—some bank facilities may include optional or partial amortization, and some high-yield deals may feature amortization or other repayment structures—but the general pattern is that bank debt is amortized and high-yield debt is bullet at maturity.

Bank debt is typically amortized over the term, meaning principal is paid down in regular installments along with interest. This gradual repayment reduces the outstanding balance over time, which lowers risk for lenders and aligns with the shorter, more secured nature of bank facilities. High-yield debt, on the other hand, is usually issued as a bullet at maturity, with most or all of the principal due in one lump sum at the end, while interest is paid periodically. This structure preserves cash flow for the borrower in the early years and compensates investors for higher risk with a higher coupon.

There are exceptions—some bank facilities may include optional or partial amortization, and some high-yield deals may feature amortization or other repayment structures—but the general pattern is that bank debt is amortized and high-yield debt is bullet at maturity.