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Analysis of the 10-K Report and Bond Issuances

Corporate bonds is one category of debt issued by a company and sold to investors. The investors are basically lenders to the company – bonds are contractual debt.  With bonds, the company gets capital to buy additional assets and in return the bond holder is paid interest payments at either a fixed or variable interest rate. When the bond expires, or “reaches maturity,” the payments cease, and the original investment is returned. For your company, review the 10-K report and analyze their bond issuances.

Discussion questions

1. How much does your company have in bonds issued? What types of bonds do have they issued? When are some of the amounts due to reach maturity?
2. What is the rating of their most recent bonds?
3. If interest rates are rising, how does this impact the yield of the current bond holders

TARGET

2- 1. How much does your company have in bonds issued? What types of bonds do have they issued? When are some of the amounts due to reach maturity?

Target has issued two blocks of bonds:

1. $1.5 billion in notes paying a 2.5% interest rate, due in 2025
2. $1 billion in notes with an interest rate of 2.65% due in 2030

These are commercial/corporate bonds.” Investors who buy corporate bonds are lending money to the company issuing the bond. In return, the company makes a legal commitment to pay interest on the principal and, in most cases, to return the principal when the bond comes due, or matures.” – SEC

Reference: https://markets.businessinsider.com/bonds/target_corpdl-notes_201616-26-bond-2026-us87612ebe59

https://www.sec.gov/files/ib_corporatebonds.pdf

2. What is the rating of their most recent bonds?

Moody’s has rated Target’s most recent bond at a level of A2. A2 is the sixth highest rating in Moody’s Long-term Corporate Obligation Rating. Obligations rated A2 are considered upper-medium grade and are subject to low credit risk. This means that prospect looks statble. The proceeds of the new debt can be used to refinance their existing debt and be used for various corporate financial purposes.

Reference: https://news.yahoo.com/target-corporation-moodys-assigns-a2-160906891.html

https://www.moodys.com/credit-ratings/Target-Corporation-credit-rating-223000

3. If interest rates are rising, how does this impact the yield of the current bond holders?

When interest rates rise, the price of an exisiting bond will fall and yields will go up. On the other hand, when interest rates fall, the price of the bond will rise and yields will go down. The coupon will remain constant. Typically, most bonds will pay an interest rate that improves if the interest rate falls and the demand rises.

Reference: https://www.investopedia.com/ask/answers/why-interest-rates-have-inverse-relationship-bond-prices/#:~:text=Key%20Takeaways,a%20decline%20in%20its%20price.