What is an 'Issuer'

An issuer is a legal entity that develops, registers and sells securities to finance its operations. Issuers may be corporations, investment trusts, or domestic or foreign governments. Issuers are legally responsible for the obligations of the issue and for reporting financial conditions, material developments and any other operational activities as required by the regulations of their jurisdictions.

BREAKING DOWN 'Issuer'

Issuer's most frequently make available the following types of securities: common and preferred stocks, bonds, notes, debentures, bills and derivatives. To illustrate the role of an issuer, imagine ABC Corporation sells common shares to the general public on the market to generate capital to finance its business operations. This means ABC Corporation is an issuer and is therefore required to file with regulators, such as the Securities and Exchange Commission (SEC), disclosing relevant financial information about the company. ABC must also meet any legal obligations or regulations in the jurisdiction where it issued the security. Writers of options are occasionally referred to as issuers of options because they also sell securities on a market.

Issuers Versus Investors

While the entity that creates and sells a bond or another type of security is referred to as an issuer, the individual who buys the security is an investor. In some cases, the investor is also referred to as a lender. Essentially, the investor is lending the issuer funds, which are repayable when the bond matures or the stock is sold. As a result, the issuer is also considered to be a borrower, and the investor should carefully examine the borrower's risk of default before buying the security or lending funds to the issuer.

Credit Ratings of Issuers

Ratings firms such as Standard and Poor's and Moody's create credit ratings for issuers of debt securities, just as credit bureaus create credit profiles and scores for individual consumers. Rather than being expressed as a number like consumer credit scores, issuer scores are pegged to letters. For example, if an entity has a AAA rating, it has a history of repaying its debts and boasts a very low rate of default. Conversely, it an entity has a DDD rating, it is in default. Issuers with ratings of BB or below have their bonds labeled as junk, indicating that they pose a high risk of default for investors.

Countries also receive credit ratings. For example, after Greece missed billions of dollars of loan repayments, its credit rating was downgraded to CCC+. However, after the country implemented reforms, cut costs and recapitalized its banks, Standard and Poor's increased its rating to B-, indicating that the company's bonds are a bit safer.

RELATED TERMS
  1. Bond Insurance

    Bond insurance is a type of insurance policy that a bond issuer ...
  2. Debt Issue

    A debt issue is a financial obligation that allows the issuer ...
  3. Multi-Callable Bond

    A multi-callable bond allows an issuer to redeem its bonds on ...
  4. Fair Credit Billing Act - FCBA

    The Fair Credit Billing Act (FCBA) is a 1974 federal law designed ...
  5. Credit Default Swap - CDS

    A particular type of swap designed to transfer the credit exposure ...
  6. Call Price

    A call price is the price at which a bond or a preferred stock ...
Related Articles
  1. Investing

    Understand the Security Types of Corporate Bonds

    Any investor should be aware of the different security types regarding corporate bonds as well as the direct correlation to potential recovery rates.
  2. Investing

    Sinking Fund

    A sinking fund is a way for companies to pay off part of their bond issue before it reaches maturity. By eliminating its debt gradually, the bond issuer is more likely to attract investors concerned ...
  3. Investing

    The Basics Of Municipal Bonds

    Investing in municipal bonds may offer a tax-free income stream, but such bonds are not without risks. Check out types of bonds and the risk factors of muni-bond.
  4. Investing

    Why the Debt/EBITDA Ratio is Crucial to Junk Bonds

    Debt/EBITDA ratios are vital to estimate a firm’s capability to pay off incurred debt—specifically in order to examine the default risk of junk bonds.
  5. Investing

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  6. Investing

    How To Evaluate Bond Performance

    Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk.
RELATED FAQS
  1. Who Are the Key Players in the Bond Market?

    The bond market can be broken down into three main groups: issuers, underwriters and purchasers. Learn what each set of players ... Read Answer >>
  2. How do companies like Moody's rate bonds?

    Rating the creditworthiness of a bond issuer, despite the number crunching, is as much an art form as it is a science. While ... Read Answer >>
Trading Center