Low interest rates, relatively narrow credit spreads and persistent investor demand all spurred U.S. corporations to issue more than $1 trillion of rated debt in 2013. The dollar amount of debt issued by U.S. corporations in 2013 represented an increase of more than 4 percent from the amount issued in 2012.
According to the bond rating agency Standard & Poor’s, a total of 1,717 unique bonds were issued by U.S. corporations in 2013. Of this total number of issues, 1,155 were issued by investment grade U.S. corporations. Generally, to be deemed investment grade, a bond must be rated BBB- or higher by the rating agency. The number of bonds issued in 2013 represented an increase of just over 1 percent from 2012.
Issuance of new bonds by corporations differs somewhat from issuance of shares by corporations. In most cases, when a company issues new or additional common shares, the new shares are indistinguishable from shares issued at any point in the past. From an investor’s perspective, the date of issuance of a share of common equity generally does not matter.
In the case of bond issuance, each unique issue by a company can have a range of different characteristics. Each of these characteristics will influence the return expectations of an investor. Companies might issue bonds with a variety of different characteristics at the same time. Alternatively, companies might issue bonds with a certain set of characteristics one month and the same company could return to the debt markets and issue a new series of bonds with different characteristics a month or two or three later.
Some of the characteristics that can differ from one bond issuance to the next by the same company include the coupon rate, the maturity, the level of seniority in the company’s capital structure, whether the bond is secured by specific assets of the company, and whether the bond can be called by the issuer prior to the scheduled maturity. As there are a number of additional characteristics that can be unique to each specific bond issuance, investors need to fully research and analyze each bond to understand its specific risk profile.
Kirby Brown is the CEO of Beneficial Financial Group based in Salt Lake City.
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