Debt Issue

Definition of 'Debt Issue'


A fixed corporate or government obligation, such as a bond or debenture. A debt issue is a financial obligation that allows the issuer to raise funds by promising to repay the lender at a certain point in the future and in accordance with the terms of the contract. Debt issues include notes, bonds, certificates, mortgages, leases or other agreements between the issuer (the borrower) and lender. Debt issues, such as bonds, are issued by corporations to raise money for certain projects or to expand into new markets; municipalities, states and U.S. and foreign governments issue debt to finance a variety of projects such as social programs or infrastructure plans.

Investopedia explains 'Debt Issue'


Corporations and municipal, state and federal governments offer debt issues as a means of raising needed funds. In exchange for the "loan," the issuer must make payments to the investors (the lender) in the form of interest payments. The interest rate is often called the "coupon," and interest payments are paid using a predetermined schedule and rate. When the debt issue matures, the issuer repays the face value to the investors. Short-term bills typically have maturities between one and five years; medium term notes mature between six and twelve years; and long term bonds generally have maturities longer than 12 years. Certain large corporations, such as Coca-Cola and Walt Disney, have issued bonds with maturities as long as 100 years.

Corporate debt issues are commonly issued through the underwriting process in which one or more securities firms or banks purchase the issue in its entirety from the issuer and subsequently resell the issue to interested investors. The underwriters impose a fee on the issuer.

The process for government debt issues is different since these are typically issued in an auction format. In the United States, for example, investors can purchase bonds directly from the government through its dedicated website. A broker is not needed, and all transactions, including interest payments, are handled electronically.



comments powered by Disqus
Hot Definitions
  1. Yield Burning

    The illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond. This practice, referred to as "burning the yield," is done after the bond is placed in escrow for an investor who is awaiting repayment.
  2. Marginal Analysis

    An examination of the additional benefits of an activity compared to the additional costs of that activity. Companies use marginal analysis as a decision-making tool to help them maximize their profits. Individuals unconsciously use marginal analysis to make a host of everyday decisions. Marginal analysis is also widely used in microeconomics when analyzing how a complex system is affected by marginal manipulation of its comprising variables.
  3. Treasury Inflation Protected Securities - TIPS

    A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed.
  4. Gilt-Edged Switching

    The selling and repurchasing of certain high-grade stocks or bonds to capture profits. Gilt-edged switching involves gilt-edged security, which can be high-grade stock or bond issued by a financially stable company such as the Blue Chip companies or by certain governments.
  5. Master Limited Partnership - MLP

    A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture.
  6. Class Action

    An action where an individual represents a group in a court claim. The judgment from the suit is for all the members of the group (class).
Trading Center