Legal Definitions - bond issue

A bond issue refers to the process by which a government, municipality, or corporation offers and sells new debt securities, known as bonds, to investors. When an entity undertakes a bond issue, it is essentially borrowing money from the public or institutional investors, promising to repay the principal amount at a future date and typically making regular interest payments until then. This is a common method for raising capital for large projects, refinancing existing debt, or funding ongoing operations.

• Example 1: Funding a New City Hospital

  A rapidly growing city needs to build a new public hospital to serve its expanding population. To finance this multi-million dollar project, the city council decides to authorize a bond issue. They sell municipal bonds to investors, promising to pay them back with interest over a period of 25 years, using future tax revenues. This illustrates a local government using a bond issue to borrow money for a significant public infrastructure project.

• Example 2: Corporate Expansion into New Markets

  A large technology company plans to expand its operations into several new international markets and requires substantial capital for new facilities and marketing campaigns. Instead of issuing new stock, which would dilute existing shareholder ownership, the company's board approves a bond issue. They sell corporate bonds to institutional investors and the public, offering a competitive fixed interest rate. This allows the company to raise the necessary funds without altering its ownership structure, demonstrating a corporation using a bond issue for strategic growth.

• Example 3: State-Wide Road and Bridge Repairs

  A state government faces an urgent need to repair and upgrade its aging network of highways and bridges, a project estimated to cost billions. To avoid raising taxes significantly in the short term, the state legislature approves a major bond issue. They sell state bonds to a wide range of investors, including individuals and pension funds, who are attracted by the bonds' stability and, in some cases, tax-exempt interest. This shows a state government utilizing a bond issue to finance essential public works and infrastructure improvements.