Pros And Cons Of Selling Corporate Bonds
Here are some pros and cons of selling corporate bonds. Many companies often raise the capital they need for expansion or other projects by selling corporate bonds. Because this is very much like buying and selling other types of stock, there are advantages and disadvantages-or pros and cons if you will. Those who buy corporate bonds often try to get a return on their investment by selling corporate bonds they previously bought which have or are close to maturing. There are pros and cons to be considered also when the shoe is on the other foot, so to speak, and you are the one selling corporate bonds.
- For companies considering selling corporate bonds (hereinafter referred to as “sellers”): Doing so means that the buyer is actually loaning money to your company. This one fact alone adds to the risk factors of corporate bonds. However, companies who do this realize these risks and offset them by offering a higher interest rate than is available on government securities or other types of stock.
- For buyers: Companies actually want to have a low rating when selling corporate bonds. This is because you will receive a higher interest rate, which, hopefully, will make you decide to buy corporate bonds.
- For buyers: Buying corporate bonds actually expose you to other companies. This can help you reduce your risk.
- For sellers: Selling corporate bonds means you will have to pay large underwriting costs. These are fixed, so there’s no negotiating for a lower price. Further, the company will have to be in strict compliance with securities laws.
- For buyers: There is no guarantee that you will get back what you put into it. Companies selling corporate bonds do give the bonds maturity dates, but that does not necessarily mean the funds will be available at the time of maturity.
- For sellers: If your company does default on corporate bonds, if there are saleable assets, they will be distributed according to a priority system. Senior (or unsubordinated) security holders get paid before subordinated security holders. They get paid before shareholders.
- For buyers: Notice where you come in on the priority system discussed in #6. Take that into consideration when thinking about buying new corporate bonds and selling corporate bonds you already have.
- For sellers: If your company is well-established or has a long history of existence or incorporation behind it, selling corporate bonds may be a good way to raise needed capital. Your company’s stability will be a positive factor to those considering buying corporate bonds.
- For buyers: Check out the longevity of a company selling corporate bonds. The longer they’ve been in business, the better the chances you will get a good deal for your money.
- For sellers and buyers: Selling corporate bonds can benefit everyone involved in the transaction, if it is done properly. Please display proper business ethics when buying or selling corporate bonds.