Corporate Bond Issuance Process

Corporations issue bonds publicly to raise money for various spending needs. Corporate bond issuance goes through a typical process that also involves an underwriter, a legal counsel and some form of a closing agent. While the issuer itself must prepare to formulate the basic bond issuance structure, the underwriter takes charge of marketing the bond issuance, the legal counsel drafts any public statements and the closing agent executes fund distributions.

The bond issuer initiates the bond issuance process by formulating a basic structure for the bond issuance, sometimes with the help of a financial adviser. Matters involved in the issuance structure include the purpose of the bond issuance, such as investing in a capital project, retiring an earlier debt or other uses that the company board deems appropriate; preliminary terms of the bond's coupon rate, interest payment dates and maturity years; and selling method of the bond -- whether to negotiate with one underwriter or collect bids from multiple underwriters.

The underwriter, often an investment bank, starts its work based on the bond issuance structure established by the issuer. Sometimes the underwriter helps structure the bond issuance. But the main job of an underwriter is to market the bond issuance to the investing public. Underwriting requires that the underwriter first purchase the entire bond issuance from the corporate issuer and deliver the proceeds to the company; the underwriter then resells them to bond investors through its network of marketing forces.

The legal counsel helps draft legal documents and public statements covering a range of matters concerning the issuer, the bond issuance and other legal aspects of the bond financing. For example, the legal counsel must give his legal opinions to address certain public concerns such as whether the issuer is a viable enterprise and whether material litigation is pending against the issuer. The legal counsel also helps deliver necessary public disclosure statements to bond purchasers, including the bond issuance prospectus.

The primary agent involved at the closing is the so-called paying agent or a trustee who is responsible for distributing bond proceeds and servicing the debt on behalf of the bond issuer during the entire bond term. The paying agent often is a bank chosen by the bond issuer. At the closing of the bond issuance, the paying agent delivers the sales proceeds of the bond from the underwriter to the issuer after paying any issuance costs. The paying agent is also in charge of making interest payments and returning bond principal to bondholders when they're due.