Raising Capital Through Bond Issues Offers Advantages to Buyer, Issuer
July 11, 2014 § Leave a comment
A U.S. Navy veteran and corporate law attorney, John Kai Lassen serves as the managing director of Rockwick Capital, LLC. For much of his career, John Kai Lassen, a registered bond counsel, practiced law in Delaware and advised firms on corporate structuring and financing, including bond issues.
Owners of companies often prefer issuing corporate bonds to selling shares of stock as a means of raising capital because they do not have to give up a stake in the company. Unlike shareholders, bondholders are creditors and do not gain the right to elect the board of directors or vote on other matters. The tax code provides another advantage to bond issuers, as the interest on debt such as bonds is tax deductible, unlike dividends paid to shareholders.
Bonds also provide benefits to the buyers, who often purchase them to diversify their portfolios and move some of their assets away from equities into low-risk fixed-income securities. As bondholders, they receive predictable coupon payments of principal and interest, and the bond itself often remains a liquid asset that they can resell. In addition, because creditors take priority over shareholders in bankruptcy proceedings, investors often treat bonds as safer investments than stock if issued by companies with similar risk profiles.