Many different types of entities issue bonds in an effort to raise working capital. Corporations, and municipalities, along with the United States Government and US Government agencies, all issues bonds in order to meet their capital needs. A bond represents a loan to the issuer in exchange for its promise to repay the face amount of the bond known as the principal amount at maturity. On most bonds the investor receives semi-annual interest payments during the bond’s term. These semi-annual interest payments, along with any capital appreciation or depreciation at maturity, represent the investor’s return. A bondholder invests primarily for the interest income that will be generated during the bonds term.

Corporate Bonds

Corporations will issue bonds in an effort to raise working capital to build and expand their business. Corporate bondholders are not owners of the corporation; they are creditors of the company. Corporate debt financing is known as leverage financing because the company pays interest only on the loan until maturity. Bondholders do not have voting rights so long as the company pays the interest and principal payments in a timely fashion. If the company defaults, the bondholders may be able to use their position as creditors to gain a voice in the company’s management. Bondholders will always be paid before preferred and common stockholders in the event of liquidation. Interest income received by investors on corporate bonds is taxable at all levels, federal, state and local.



Types Of Bond Issuance

Related Articles
  1. Financial Advisor

    Corporate High-Yield Bonds vs. Equities

    Equities and corporate bonds often play a significant role regarding the diversification of an investor's portfolio. We put both asset classes in contrast.
  2. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  3. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
  4. Financial Advisor

    Advising FAs: Explaining Bonds to a Client

    Most of us have borrowed money at some point in our lives, and just as people need money, so do companies and governments. Companies need funds to expand into new markets, while governments need ...
  5. Investing

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  6. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  7. Investing

    Why Companies Issue Bonds

    When companies need to raise money, issuing bonds is one way to do it. A bond functions like a loan between an investor and a corporation.
  8. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  9. Investing

    Six Biggest Bond Risks

    Don't assume that you can't lose money in this market - you can. Find out how.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center