A bond is a loan split into tradable pieces. When a company issues bonds, it sells them to investors in return for cash, and promises to pay interest, called the coupon, at set intervals and to repay the principal on a stated maturity date. Large issuers usually work with underwriting banks, and the terms are set out in a legal document called an indenture, which may include covenants, meaning promises that limit what the company can do.
Companies use bonds to fund expansion, acquisitions, refinancing of older debt or general needs. Compared with a bank loan, a bond can raise a larger amount from many investors, often at a fixed rate and with longer maturities.
The obligation is fixed. Interest and principal are owed whether the business is doing well or not, and a missed payment can lead to default.
Check the amount, the coupon, the maturity, whether the bonds are secured, the use of proceeds and the covenants, and consider how the new debt affects the existing leverage.