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'

The most common types of securities issued are 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. Exchangeable Security

    An investment instrument that grants its holder the right to ...
  2. Temporary Default

    A bond rating that suggests the issuer might not make all of ...
  3. Bond Rating Agencies

    Bond rating agencies are companies that assess the creditworthiness ...
  4. Bond Insurance

    Bond insurance is a type of insurance policy that a bond issuer ...
  5. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming ...
  6. Call Price

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

    Junk Bonds’ Performance After the Financial Crisis

    How did higher-yielding bonds perform during and after the financial crisis of 2007-2009?
  2. 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.
  3. Personal Finance

    The Power of Major Credit Rating Agencies

    The performance of major independent credit rating agencies is a controversial topic, particularly due to the strength of their influence.
  4. 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 ...
  5. Investing

    What Is A Corporate Credit Rating?

    Is the bond you're buying investment grade, or just junk? Find out how to check the score.
  6. Investing

    When Your Bond Comes Calling

    Callable bonds can leave investors with a pile of cash in a low-interest market. Find out what you can do about it.
  7. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
RELATED FAQS
  1. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ... Read Answer >>
  2. Who facilitates buying and selling on the primary market?

    Learn more about the primary marketplace -- home of initial public offerings -- and the major players that make buying and ... Read Answer >>
  3. What risk factors should investors consider before purchasing a callable bond?

    Understand the difference between callable and non-callable bonds and consider all the various risk factors associated with ... Read Answer >>
Hot Definitions
  1. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  2. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  3. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  4. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  5. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  6. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
Trading Center