Issue

What does 'Issue' mean

Issue is the process of offering securities as an attempt to raise funds. Companies may issue bonds or shares to investors as a method of financing the business. The term "issue" also refers to a series of stocks or bonds that have been offered to the public, and typically relates to the set of instruments that were released under one offering.

BREAKING DOWN 'Issue'

The issuance of securities can take many forms. Companies may have a new issue, in which they release a security for the first time, or a seasoned issue, in which an established firm offers additional shares. For example, if a company sells a group of 10-year bonds to the public, that set of bonds will be referred to as a single issue.

If a company needs capital to stay in business, it has options to secure funding through selling stock or issuing bonds. In a secondary stock offering, the board of directors (BOD) votes to issue more shares and increase the number of shares trading. Money raised goes straight to the company. If a business wants to move existing debt and create new debt at the same time, it might decide to issue bonds. The company borrows money from investors and repays it with interest. The interest is a tax-deductible expense that reduces the corporation’s cost of borrowing.

Factors in Issuing Stocks or Bonds

Companies need to consider business goals when deciding whether to sell stock or to issue bonds. Money from stock does not need to be repaid, nor does interest need to be paid, as it does with bonds. However, corporations can issue bonds as long as investors are willing to act as lenders. Since each issue of stock changes an investor's ownership in the company, there is a limit to how much stock the company can issue. Because companies can pay bondholders a lower interest rate and retain greater control over funding, issuing bonds is less expensive than borrowing from a bank. Bonds do not change the ownership or operation of a company is owned, while selling stock does. Recordkeeping is simpler with bondholders, as all earn the same interest rate and have the same maturity date. Bond offerings are also more flexible than stock issuance.

Stock and Bond Underwriting

Companies issuing stocks and bonds may use investment banks to facilitate the process. For example, if a company decides to sell bonds, the investment bank determines the value and riskiness of the corporation, and then determines the prices, and underwrites and sells the bonds to the public. Investment banks might also underwrite stocks or other securities for an initial public offering (IPO) or secondary public offering.

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