Bond Issue

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Bond Issue is the procedure involving the issue of debt securities in the form of Bonds, that is undertaken by the business concerns which require financial resources in order to pay off debts incurred previously or to provide for expansion programs. Bond Issue involves issuers as well as lenders.

In order to understand the processes included in Bond Issue, those interested should, at first, come to terms with the fact that either commercial corporations or government agencies circulate debt securities (which are better known as bonds) in the Bond Markets in order to raise funds to meet certain business goals. The companies which conduct profit oriented businesses as well as those which are not – for – profit (such as governments, federal agencies, and municipalities etc.) release bonds in the Bond Markets, so that the funds that they are lacking in are raised from amongst the public.

However, these Bonds Issued in the Bond Market are distinct from the stocks which are also issued by the corporations to raise funds, in the financial markets like the Stock Market. Stocks allow for the investor to become the owner of the company whose stocks he or she has bought, by a minute percentage. In contrast, the purchase of Bonds make the bond holder a creditor of the company, that is, the company which has borrowed a sum of money equal to the collected price of the bonds from the Bond holder becomes indebted to the lender.

The Bond Issue that is made by a company, as and when purchased by an investor who through the investment of the sum of money becomes a lender, from whom the company borrows, entitles the Bond Issue owner to a number of profitable allotments. The Bond Issue owners are paid a periodical sum of interest that is commonly termed as the Coupon Rate.

The companies in need of financial resources in order to pay off debts incurred previously or to provide for expansion programs, however Issue Bonds only for a certain time period, which is technically termed as the Maturity, and after the completion of this period the Bond Issuing companies make repayments to the Bond owners amounting to the sum of money originally invested by them or specifically speaking against the face value of the Bonds possessed by the Bond holders.

The process of Issuance of Bonds includes certain expenses that are incurred by the issuer, and are better known as the Costs of Issuance. The Costs of Issuance that is covered by the issuers during the sales of bonds includes all of the following expenditures :

  • fees paid to the consultants
  • fees and charges towards legal expenses
  • trustee’s fees
  • printing costs
  • discounts on bonds or notes
  • costs of credit ratings
  • the execution and safekeeping fees and charges of bonds or notes, and
  • fees for filling and recording the issuance of bonds. In contrast to the corporations which issue stocks in the share markets, thereby sharing with the owners of stocks, a percentage of the ownership of the corporation, the organizations which Issue Bonds in the Bond Markets are reluctant in sharing even the least minimum percentage of their ownership with the Bond owners.

    Bond Issuance can be considered to be a vast procedure for it includes a lot of smaller processes as stated above. Bond Issuing by organizations are done on the floors of the Primary Bond Markets where those who are interested in providing loans to the organizations Issuing Bonds, buy the Bonds that are Issued. Later, when these Bonds that were Issued earlier are traded amongst the Bond owners at the Secondary Bond markets.

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