High-Yield Debt Considerations
This dashboard is based on Exhibits 7 and 12 of High-Yield Lending: It’s Good Until It’s Not, which illustrate tranche-level outcomes under scenarios where the lender has sufficient versus insufficient liquidity to protect its position in the event of default.
The dashboard summarizes key performance metrics for each mezzanine tranche based on these modeled outcomes. While expected returns kα and standard deviations σα are reported, they do not fully capture risk because lending returns are asymmetric: the upside is capped, while downside losses can be significant. To provide a clearer picture, the dashboard also displays the probabilities of each of the following outcomes by tranche:
- full repayment of principal and interest
- repayment of principal only
- partial principal recovery
- complete loss of principal
The probabilities help illustrate the distribution of potential outcomes across the capital stack.
Users can adjust the values of kα and σα to explore how changes in assumptions affect tranche-level performance.
Click here to edit the spreadsheet on a new tab
These analyses are intended solely for academic purposes. No warranty or representation is made with regard to their accuracy.