Understanding Corporate Bonds: 7 Examples of how Companies use Bonds to Raise Capital

Corporate bonds are a type of fixed-income security and they pay a fixed interest rate to investors over a set period of time. The interest rate (also known as the coupon rate) is typically higher than the rate offered by government bonds or savings accounts which reflects the higher risk associated with corporate debt.

Corporate bonds can have different maturities, starting from a few months to several decades. When a bond matures, the issuer must repay the principal to the bondholder, in addition to any accrued interest payments.

Investors can buy and sell corporate bonds on the secondary market, which allows them to trade bonds before they mature. Bond prices can fluctuate depending on factors such as interest rates, credit ratings, and market conditions.

Corporate bonds can be rated by credit rating agencies, such as Standard & Poor’s, Moody’s, and Fitch, who give ratings based on the issuer’s creditworthiness and ability to repay its debt. Companies with higher credit ratings are considered less risky and may offer lower coupon rates while companies with lower credit ratings may offer higher coupon rates to compensate for the higher risk of default.

Here are 7 examples of how companies use bonds to raise capital:

1. Amazon.com issued $16 billion in bonds in 2020 to finance its acquisition of Whole Foods Market. The bonds were issued in three different tranches, with maturities ranging from three to forty years.

2. ExxonMobil issued $12 billion in bonds in 2020 to refinance its debt and fund capital expenditures. The bonds were issued in six different tranches, with maturities ranging from five to thirty years.

3. Microsoft issued $19.75 billion in bonds in 2020 to finance its general corporate purposes, including stock buybacks and dividend payments. The bonds were issued in six different tranches, with maturities ranging from three to forty years.

4. Berkshire Hathaway issued $8 billion in bonds in 2020 to refinance its debt and fund its investment activities. The bonds were issued in four different tranches, with maturities ranging from three to thirty years.

5. Ford Motor Company issued $8 billion in bonds in 2020 to fund its operations and support its turnaround plan. The bonds were issued in four different tranches, with maturities ranging from three to ten years.

6. Verizon Communications issued $12 billion in bonds in 2019 to refinance its debt and fund its operations. The bonds were issued in six different tranches, with maturities ranging from three to thirty years.

7. Pfizer Inc. issued $5 billion in bonds in 2020 to finance its general corporate purposes, including share repurchases and debt repayment. The bonds were issued in three different tranches, with maturities ranging from five to thirty years.

In summary, corporate bonds are a popular way for companies to raise capital and finance their operations, acquisitions, and growth plans. By issuing bonds, companies can access capital markets, diversify their funding sources, and manage their debt maturities. Investors, in turn, can earn fixed income from corporate bonds, which typically offer higher yields than government bonds or savings accounts.