Corporate Bonds
Corporation issue bonds to borrow money
mostly for expansion purposes, capital investment and
managing cash flow, building new facilities, purchasing
equipment. It is a long term debt, longer than
¨commercial paper¨. Corporate bonds are usually listed on
the major exchanges but are mostly traded over the counter.
Some of these bonds are convertible into
equity of the Corporation. They are issued by financial
institutions, industrial corporations, public utilities,
transportation companies and services companies.
As for the investors, there is an array of
choice in terms of rate, maturity term, quality risk and
exposure. It translate in various types of corporate bonds
from high yield bonds to fixed rate capital securities.
These interests are taxable.
Bonds do not give you ownership in the
corporation but it gives more leverage on bankruptcy issues.
Bondholders are paid before shareholders and after secured
creditors like real estate collateral holders.
Through a corporate bond, you are in fact
lending money to that company. Just like a bank would do.
The corporations usually turns to the market to borrow that
money when they need to borrow more than what the
banks are ready to lend them and in exchange they will
usually offers higher rates of interest on these bonds.
The majority of investors in corporate
bonds are large financial institutions, pension funds,
insurance companies, banks, wealthy individuals while these
securities offer many benefits for more modest investors.
Outstanding corporate bonds are in excess of $ 6 trillion
and daily trading is around $15 billion.