Definition of Bond Issuer
Bond Issuers are the issuing entity of the bonds which the investors purchase. Bond Issuers can be Government entities, firms, Municipalities, Special Purpose Vehicles, etc. The bond issuers are required to repay the principal amount at the maturity date of the bond. The bond holders are required to check the credit rating of the bond issuers before investing. The bond issuer is required to pay coupon amount every month or half-yearly or maybe yearly to the borrowers of the bond, and like any other bond, the repayment is at the maturity date.
Explanation
Bond issuers are the entities that are issuing the bonds for the investors. The bond issuers pay the required principal amount at the maturity date. The bond issuers are the entities fully owned by the government entities, the municipalities, SPVs, etc. The bonds are issued to mitigate the fund’s requirement. The bond issuer pays interest to the investor and also repays the principal outstanding amount on the maturity date.
Example of Bond Issuers
US Treasury bond is a bond issuer that issues bonds to the public. The US Treasury bonds are also known as T Bonds. The US Treasury bonds have a maturity of 20 years or more. These bonds earn periodic interest up to the date of maturity. On reaching the maturity date, the principal amount is repaid. This is a classic example of the bond issuer.
Types of Bond Issuers
There are almost four to five types of bond issuers. These are Firms, Government entities, Municipalities, Special Purpose Vehicles, etc.
- Firms: Whenever firms require funds to finance their projects or if there arises any working capital requirement, then the firms issue the bonds. The issued bonds can have different credit rating as compared to the credit rating of the firm. Therefore the investors should analyze the pointers of the bond and then make the investment decision. Firms issue different classes of bonds, and thus the investor has choices to make.
- Government: The government entities also issues a bond to the public to finance their projects. The US Treasury bonds are one of the most popular government entity bonds. The rating of these bonds is very high, and thus the investors get attractive returns from these bonds. The government bonds also differ with the countries. In some developed countries, government-issued bonds are less risker in comparison to that of developing countries. Therefore the investor should be keen enough to understand the bond policies before investing their proceeds.
- Municipalities: The Municipalities are also bond issuers that issue bonds to the public. The Municipalities also act as the government in this case. The bonds are highly rated like the bonds issued by government entities. The Municipalities get support from the government so that the municipalities can gain the faith and trust of the investors.
- Special Purpose Vehicle: Certain firms or government entities issue bonds for special purpose or projects. These bonds are specially to finance certain projects that may include projects related to building and repairing lands and bridges, etc.
How Bond Issuers Make Money?
The bond issuer issues the bonds to the public, and then the investors invest their money in it. The bond issuers are then required to pay periodic interest to the investors, and the principal value is repaid at the end of the maturity period. The money which is invested can be utilized by the bond issuer and can be treated as a loan. The bond issuer can finance the projects, and after the work is completed, the money is returned back to the investors. Thus the purpose of the bond issue is completed here. Also, the bond issuers make money out of this process.
Advantages & Disadvantages of Bond Issuer
Some of the advantages and disadvantages are given below:
Advantages
- The advantage of issuing bonds to the public can create capital for the issuers.
- The investors also get attractive hybrid options to invest in the bonds.
- The bond issuer can utilize the money to process their projects.
- Investors can save taxes while investing in the bond.
- The investors can also get some interest payment on a periodic basis.
- The interest payment which is made to the bond issuers are also deductible and has no tax implication.
- The retention of the capital is best possible in case of issuing the bonds.
- It has also been seen that the issuance of bonds is cheaper than that of the shares. The issuing of shares can add more cost, and the risk is the same as any other investment.
- The issuer of the bond is not required to pay higher returns to the investors like that of the issuers of shares.
Disadvantages
- The bond issuers are required to pay the interest payment to the investors. Therefore it is like an obligation for the bond issuers.
- The investors of these bonds get fewer returns as compared to the investors of the share of any company.
- The obligation to make the repayment of the principal amount is always there in the case of the bonds.
- It has also been seen that the investors’ risk is fewer in case they invest in the debt of the company rather than bonds of the firms or bonds issued by the government entities.
Conclusion – Bond Issuer
Bond issuers are the firms, government entities, special purpose vehicles. They are issuing bonds in the public domain. The investor invests their money and purchases the bonds. The bond issuers are required to pay interest to the investors periodically. The investor will have to be keen about his investments made. The bonds pay off fewer returns than any other investment. The bond issuer issues these bonds with financing their projects. They require bonds to raise funds that they invest in their projects. Apart from that, the bond issuers must pay back the entire principal amount on the maturity date. The investors can save their taxes in this transaction. The issuance of bonds is cheaper than the issuance of shares. Considering all the advantages and disadvantages, the investors are required to check the bond policies before investing.
Recommended Articles
This is a guide to Bond Issuer. Here we also discuss the definition and how bond issuers make money? Along with advantages and disadvantages. You may also have a look at the following articles to learn more –
