High-Yield Debt Explained: Bonds, Private Credit, and Notes

“High-yield debt” is a broad label for borrowing that pays lenders more than investment-grade debt — because it carries more risk. Understanding the spectrum helps you see what a given yield is actually compensating you for.

What makes debt “high-yield”

All debt pays interest. Debt is called high-yield when its interest rate sits well above what safe, investment-grade borrowers pay. That extra yield is not a gift — it is the market’s price for extra risk: a greater chance the borrower fails to pay, less liquidity, weaker legal protections, or all three. A useful rule of thumb: the higher the promised yield, the higher the risk being priced in.

The high-yield debt spectrum

• High-yield (“junk”) bonds. Bonds from companies rated below investment grade by agencies like Moody’s or S&P. Registered or issued under established exemptions, rated, and usually traded on a secondary market.
• Leveraged loans. Senior, often secured loans to below-investment-grade companies, typically floating-rate and held by funds.
• Private credit / BDCs. Direct lending to companies through private funds or business development companies, less liquid than public bonds.
• Private promissory notes. Direct debt obligations issued by a company to investors, often unregistered, unrated, and illiquid. This is the highest-risk, least-transparent end of the spectrum.

Why higher yield means higher risk

Three forces push a yield up, and each is a risk you are being paid to take:

• Default risk. Weaker or unproven borrowers are more likely to miss payments. When they do, high-yield lenders can lose principal.
• Illiquidity. If there is no market to sell into, you are locked in. Private notes usually cannot be sold at all.
• Subordination and security. Unsecured lenders rank behind secured and senior creditors in a bankruptcy and may recover little or nothing.

Where Oaktower’s notes fit

To be clear about our own product: Oaktower Capital issues private promissory notes — the highest-risk end of the spectrum above. They are unregistered (sold under a Rule 506(c) exemption), unrated by any agency, generally unsecured, and illiquid. They are not high-yield bonds and carry none of the ratings, secondary-market liquidity, or registered-offering disclosures that bonds do.

The coupon is funded by a systematic 0DTE options strategy that can lose money, so the stated rate is not a guarantee of payment. If you are comparing our notes to “high-yield” products you have seen elsewhere, treat them as a distinct, speculative instrument — and read the risk disclosures first.