Why do companies issue 100-year bonds?

By Albert Phung AAA
A:

Although it is rare, companies do issue bonds that exceed an average person's life expectancy. For example, multi-billion dollar companies such as the Walt Disney Company and Coca-Cola have issued 100-year bonds in the past. Many of these bonds and debentures contain an option that lets the debt issuer partially or fully repay the debt long before the scheduled maturity. For example, the 100-year bond that Disney issued in 1993 was suppose to mature in 2093, but the company can start repaying the bonds any time after 30 years (2023).

Companies issue bonds with long maturities because the goal of any business is to profit from the market's demand. When it comes to 100-year bonds, there is a group of investors that has a strong demand for these bonds. More specifically, certain institutional investors use 100-year bonds to lengthen the duration of their bond portfolios to fulfill certain duration-based goals.

Some analysts see the demand for this type of long-term bond as an indicator of consumer sentiment for a specific company. After alls, who would buy a 100-year bond from a company they didn't believe would last? For example, if there was especially high demand for Disney's 100-year bond, this could mean that many people believe that the company will still be around to pay out the bond in a century.

1,000-year bonds also exist. A few issuers (such as the Canadian Pacific Corporation) have issued such bonds in the past. There have also been instances of bonds issued with no maturity date, meaning that they continue paying coupon payments forever. In the past, the British government has issued bonds called consols, which make coupon payments indefinitely. These types of financial instruments are commonly referred to as perpetuities.

To learn more about bonds and duration, see the Bond Basics Tutorial and Advanced Bond Concepts.

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