In the general corporate world, instead of borrowing from a bank, companies may choose to raise private finance by issuing bonds which are purchased by investors. Bonds in this context are debt instruments and may provide more certain, longer-term financing than bank debt. The company which issues the bond pays interest to the bondholders periodically, most commonly at a fixed rate but also potentially at a floating or index linked rate and repays the principal amount either in full on final maturity or in scheduled instalments. As with a bank loan, specific documentation is required for a bond issue and there is an established process to follow.
Bond issues may be public (listed on a stock exchange) and freely tradeable between investors. Alternatively, bonds may be issued by private placement (offered to a very limited number of investors) in which case they may be subject to transfer restrictions. The restrictions will depend on the relationship between the issuer and the investors. A privately placed transaction can be listed or unlisted. If a bond is publicly listed, the issuer will have to comply with the listing authority's detailed rules on the level of information it must disclose to prospective investors about its business and also will be subject to securities laws which will dictate the specifics of the disclosure.
A public bond issue is usually assigned a credit rating by at least one rating agency. A private placement may or may not have a credit rating. This provides an independent assessment of the underlying credit of the issuer and is a guide to investors as to the likelihood of the issuer meeting its principal and interest payment obligations under the bonds. Some investors may only (for regulatory or policy reasons) invest in 'investment grade' issuances (i.e. those rated at least BBB- by Standard & Poor's or Fitch or Baa3 by Moody's).
As bonds can be issued with long maturity dates, they suit the investment profile of institutions seeking predictable long term investments to match their maturing liabilities, such as pension funds and insurers.