Debt Issue

A fixed corporate or government obligation, such as a bond or debenture. A debt issue is a financial obligation that allows the issuer to raise funds by promising to repay the lender at a certain point in the future and in accordance with the terms of the contract.

 Debt issues include notes, bonds, certificates, mortgages, leases or other agreements between the issuer (the borrower) and lender. Debt issues, such as bonds, are issued by corporations to raise money for certain projects or to expand into new markets; municipalities, states and U.S. and foreign governments issue debt to finance a variety of projects such as social programs or infrastructure plans.

Corporations and municipal, state and federal governments offer debt issues as a means of raising needed funds. In exchange for the "loan," the issuer must make payments to the investors (the lender) in the form of interest payments. The interest rate is often called the "coupon," and interest payments are paid using a predetermined schedule and rate. 

When the debt issue matures, the issuer repays the face value to the investors. Short-term bills typically have maturities between one and five years; medium term notes mature between six and twelve years; and long term bonds generally have maturities longer than 12 years. Certain large corporations, such as Coca-Cola and Walt Disney, have issued bonds with maturities as long as 100 years.

Corporate debt issues are commonly issued through the underwriting process in which one or more securities firms or banks purchase the issue in its entirety from the issuer and subsequently resell the issue to interested investors. The underwriters impose a fee on the issuer.

The process for government debt issues is different since these are typically issued in an auction format. In the United States, for example, investors can purchase bonds directly from the government through its dedicated website. A broker is not needed, and all transactions, including interest payments, are handled electronically.

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There are several different types of syndicates, including underwriting syndicates, banking syndicates and insurance syndicates. A professional financial services group formed temporarily for the purpose of handling a large transaction that would be hard or impossible for the entities involved to handle individually. Syndication allows companies to pool their resources and share risks.





For example, an underwriting syndicate is a group of investment banks that works together to issue new stock to the public. The bank that takes the lead in this endeavor is called the syndicate manager. Thirty days after the sale is complete, or if the securities cannot be sold at the offering price, the syndicate will break up.

Some other types of syndicates represent a joint effort, but are not temporary.

A professional financial services group formed temporarily for the purpose of handling a large transaction that would be hard or impossible for the entities involved to handle individually. Syndication allows companies to pool their resources and share risks.