Meaning of Issuer
When it comes to finances, the term issuer is often mentioned. This designation has become established for the issuers of certain financial products, especially on the stock and bond markets as well as credit cards.
- Issuer comes from the Latin and means something like publisher.
- On the stock exchange, companies or state institutions that put securities on the market are called issuers.
- In the case of credit cards, savings banks, banks and sometimes the card companies themselves issue the cards as issuers to their customers.
Definition: what exactly is an issuer?
According to digopaul, the term “issuer” is derived from the Latin verb “emittere”, which can be translated as “expel” or “put into circulation”. In the money economy, an issuer is therefore someone who brings a new financial product to the public. The name has become common in two areas in particular.
- On the stock exchange, the issuer is the issuer of securities such as bonds or stocks .
- In cashless payment transactions, banks, savings banks and other financial service providers issue credit cards.
In addition, the term is also used in science and technology to describe the cause of an emission. For example, a coal fired power station , an issuer of carbon dioxide , and in the technical jargon of scientists emits a light emitting diode light.
Bond issuers on the capital market
With bonds, companies and government institutions raise outside capital, which is primarily intended to finance investments and secure liquidity. Anyone who buys a bond becomes the lender of the bond issuer. He receives a fixed rate of interest during the term, and at the end of the term the debtor repays the bond holder the face value of the security.
If a company or a government institution offers bonds on the stock exchange, it is called a bond issue. The security can then be traded on the stock exchange after it has been issued. As a rule, the issuers offer a fixed total volume, for example 100 million euros or 500 million euros. Investors can now decide whether to trust the debtor’s creditworthiness and purchase bonds.
What is an issuer risk?
Because the holder of a bond effectively becomes the lender of the issuing company or state, he runs the risk of losing the money he has invested if the debtor becomes insolvent .
How high the loss is in an emergency depends on how serious the financial problems of the issuer are. In less serious cases, bondholders get 40 to 60 percent of their face value back. In the worst case, however, there is also a risk of total loss.
Issuer rating helps with the assessment of creditworthiness
To make it easier for investors to assess creditworthiness , many bond issuers have their creditworthiness assessed by rating agencies. In the case of companies, the agencies check, among other things, the continuity of income, the level of equity , debt and susceptibility to economic fluctuations. Countries also subject themselves to an issuer rating and have their financial policies and the stability of their economies assessed by the rating agencies.
The rating agencies with the greatest importance worldwide are Moody’s, Standard & Poor’s and Fitch. After the issuer rating has been completed, you assign the audited company a grade that enables a potential bond investor to obtain the necessary information about the debtor’s creditworthiness at a glance.
|Issuer’s credit rating||Moody’s||Standard & Poor’s||Fitch|
|Top credit, maximum security||Aaa – Aa3||AAA – AA-||AAA – AA low|
|High credit rating, low risk||A1 – Baa3||A + – BBB-||A high – BBB low|
|Sufficient creditworthiness, medium risk||Ba1 – B3||BB + – B-||BB high – B low|
|Bad credit rating, high risk||Caa1 – Approx||CCC + – CCC-||CCC – CC|
|Highest risk||C – D||CC – D||C – D|
Issue of shares and other securities
Other securities are also referred to as an issue when they are newly listed on the stock exchange. These include in particular:
- Investment certificates
- Derivatives such as warrants
In these cases, the issuer is the company that enters into an obligation to the holder of the security. In the case of shares, this is the respective stock corporation. In the case of derivatives and investment certificates, the issuer is the bank that puts the security on the market. This also applies if a derivative or investment certificate relates to the share price of another company.
Credit card company and credit card issuer
Issuers are also often mentioned in the case of credit cards. This is a bank or other company that issues credit cards to its customers.
A credit card issuer is not to be confused with the credit card company. The latter is the financial service provider who processes the card payments. Well-known credit card companies include MasterCard and Visa .
Example: If a savings bank offers MasterCard credit cards to its customers, the savings bank is the issuer and MasterCard is the credit card company.