Why the high yield?
Typically, a company pays above-market rates for two reasons: It is desperate for the money or it is using the high rates as a marketing ploy. Ed Elverud, president of Sumner Harrington, says that STEN’s rates were “not set out of desperation at all,” but added that he does “wonder if they will raise more questions than money because they set the rates so much higher that people could get worried about what it means.” The worry is understandable. “Renewable unsecured subordinated notes” are personalized, small-scale junk bonds. The debt is unrated, uninsured, has no sinking fund to pay off the notes and has no trading market. If STEN goes belly up, all leftover funds will be used to pay every other debtor before the note-holders get a penny, and the odds are there would be nothing left. That means an investor needs to understand an issuer’s business and believe in it. Under normal circumstances with corporate bonds, there’s a credit rating to review, but STEN hasn’t been rated by the m
