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Corporate Bonds

What Are Corporate Bonds?

Corporate bonds are debt securities issued by a corporation in order to raise money to grow the business, pay bills, make capital improvements, make acquisitions, and for other business needs.

Bonds are sold to investors and the company gets the capital it needs and in return, the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate. When the bond expires, or “reaches maturity,” the payments cease and the original investment is returned.

The backing for the bond is generally the ability of the company to repay, which depends on its prospects for future revenues and profitability. In some cases, the company’s physical assets may be used as collateral.

Key Takeaways:

  • A corporate bond is a debt issued by a company to raise capital.
  • An investor who buys a corporate bond is effectively lending money to the company in return for a series of interest payments, but these bonds may also be actively traded on the secondary market.
  • Corporate bonds are typically witnessed as somewhat riskier than government bonds, so they usually have higher interest rates to compensate for this additional risk.
  • The highest quality (and safest, lower yielding) bonds are commonly referred to as "Triple-A" bonds, while the least creditworthy are termed "junk".

The Bottom Line:

Companies need money to run their businesses. Even if they generate enough money through their core operations, it can be financially prudent to raise outside money. Companies generally have two options of doing this: equity financing and debt financing.

Equity financing is the issuance of stocks and debt financing includes the issuance of bonds. Corporate bonds allow companies to raise capital without giving up ownership and to operate more freely.

These Bonds/Debentures are Transferable Securities available in both the markets (Primary and Secondary) for the latest offers in the Secondary Market.

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