How to Issue a Bond

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A bond can be issued by governments, by credit institutions, by financial institutions, by companies and corporations and by supranational institutions in primary markets. Primary markets refer to the market where securities are first sold and are also called the New Issue Market (NIM). The most important thing to do is to inquire about the availability of the bonds and the ratings of the bonds you wish to issue with a financial advisor. Once you’ve spoken to a financial advisor, you’ll have to go through a few more steps.

Step 1

Indicate the nominal value or the face value or the principal of the bond - The nominal value is the amount that the issuer pays at maturity and the amount that earns the interest.

Step 2

Indicate the issue price of the bond - The issue price of the bond is the price at which the bond was bought when the bond was first issued and it is usually for $1000.

Step 3

Indicate the maturity date of the bond - The maturity date of the bond indicates the date on which the nominal amount of the bond will be paid by the issuer. The maturity of the bond can either be on a short term basis of three years or on long term basis of more than three years, up to 30 years in general. Although at present, there are bonds that mature after fifty years or more.

Step 4

Indicate the coupon and the coupon date of the bond - The coupon of the bond indicates the interest that the issuer pays the holder of the bond. Generally, the coupon is a fixed interest rate throughout the maturity of the bond. There are also bonds that have coupons that are dependent on the movement of the market or the market index. The coupon date is the date when the issuer pays the coupon which in the United States is at a semi-annul basis and on an annual basis in Europe.

Step 5

The indenture or the covenants of the bond - The indenture or the covenants is a document that specifies the rights of the holders of the bond.

Step 6

Indicate the optionality features of the bond - These are what are referred to as embedded options such as the callability option which allows the issuer the privilege to repay the bond before maturity. Another option is the puttability option which allows the holder of the bond to compel the issuer to repay the bond before the maturity date. Another option can be the indication of call dates and put dates which are the dates on which the bonds would be callable or puttable.

Step 7

The sinking provision - This provision in the bond issue allows a certain portion of the issue to be retired at certain periods.

Step 8

Indicate whether the bond is convertible or revertible - A convertible bond allows the holder of the bond to exchange the bond to a number of shares in the stocks of the issuer while the exchangeable bond allows exchange to shares of the corporation other than the share of the issuer of the bond.

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