Understanding Demireps: The Risks and Rewards of High Debt-to-Equity Ratio Companies

A demirep is a term used in the context of finance and investing to describe a company that has a high level of debt relative to its equity. Specifically, a demirep is a company that has a debt-to-equity ratio of 200% or higher, which means that the company has twice as much debt as it does equity.

The term "demirep" is derived from the French word "démi-rep," which means "half-repayment." It was originally used in the context of bonds to describe a type of bond that had a half-repayment feature, where the issuer would repay only half of the face value of the bond at maturity. Over time, the term has been applied more broadly to describe companies with high levels of debt.

Being a demirep can be risky for a company because it can make it difficult to meet its financial obligations, such as interest payments on its debt. If a company is unable to generate enough cash flow to service its debt, it may default on its obligations and risk bankruptcy. As a result, investors may view demireps with caution and require a higher return in order to take on the additional risk of investing in such companies.