Issue

Issue: Definition, Purpose, and Types of Securities Offerings

An issue is the offering of securities—stocks or bonds—to investors to raise capital. The term also refers to a specific series of securities released under a single offering (for example, a particular tranche of 10‑year bonds).

Key takeaways

• An issue raises capital by offering new securities to investors.
• New issues (first-time offerings) and seasoned issues (additional offerings by an established firm) are common forms.
• Issuing additional shares can dilute existing ownership; issuing bonds does not dilute ownership but creates debt obligations.
• Underwriting by investment banks helps price, market, and distribute issues while vetting risk.

Types of issues

• New issue: The security is being offered for the first time.
• Seasoned issue (follow‑on offering): An established issuer offers additional shares or debt.
• Secondary offering (as used here): A board-approved issuance that increases shares available to the public; proceeds go to the company.
• Private placement: Securities sold directly to selected investors rather than the public.

Why companies issue stock or bonds

Companies choose between equity and debt based on financing needs and strategic goals:
* Equity (stock)
* Proceeds do not need to be repaid.
* Dividends are discretionary, not required like interest payments.
* Issuing more shares dilutes existing ownership and can depress per-share metrics.
* Debt (bonds)
* The company borrows money and repays principal plus interest; interest is tax‑deductible.
* Bonds preserve ownership and control.
* Bond issues are attractive when investor appetite exists and can be less expensive than bank loans.
* Bonds with the same issue typically share identical coupon rates and maturity dates, simplifying record-keeping.

These choices affect a firm’s capital structure—the mix of debt and equity—which in turn determines its overall cost of capital. Balancing debt and equity helps manage financing costs and financial risk.

Underwriting and distribution

Investment banks commonly facilitate issues by:
* Assessing issuer creditworthiness and market risk.
* Setting prices and terms.
* Underwriting the securities—buying them from the issuer (or guaranteeing the sale) and reselling to investors or dealers.
* Organizing private placements or public offerings, including IPOs and secondary offerings.
* Forming underwriter syndicates and assigning book runners for large transactions.

Underwriting provides a vetting process that helps ensure an issue is priced appropriately. If risk is judged too high, underwriters may demand higher yields or decline participation.

Conclusion

An issue is the primary mechanism companies use to raise capital through stocks or bonds. The choice between issuing equity or debt involves trade‑offs in cost, control, and financial structure. Underwriting and distribution by investment banks play a central role in bringing issues to market and aligning issuer needs with investor demand.