What Is a Seasoned Issue?

A seasoned issue is an issue of additional securities from an established company whose securities already trade in the secondary market. A seasoned issue is also known as a seasoned equity offering or 澳洲幸运5官方开奖结果体彩网:follow-on public offering (FPO). New shares issued by blue-chip companies are considered seasoned issues. Out🅰standing bonds trad𓃲ing in the secondary markets are also called seasoned issues.

How a Seasoned Issue Works

Seasoned issues are handled by equity 澳洲幸运5官方开奖结果体彩网:underwriters working on behalf of the company issuing the new shares. The company will base the price of the new shares on the market price of the outstanding shares. Typically, equity underwriters are investment banks that specialize in working with publicly traded companies to ensure the seasoned issue meets all regulatory requirements. In an effort to facilitate the sale of the new shares, the underwriters will also notify large 澳洲幸运5官方开奖结果体彩网:institutional investors of the upcoming stock sale. 

A seasoned issue should not be confused with an 澳洲幸运5官方开奖结果体彩网:initial public offering (IPO). An IPO🥀 occurs when a private company transitions to a publicly traded company where investors can buy and sell shares on a stock exchange. The IPO represents the first time public investors can purchase shares of the company. A seasoned issue, on the other hand, occurs when the management of an existing publicly traded company decides to sell additional shares of stock to raise money.

Types of Seasoned Issues

Dilutive Seasoned Issues

A seasoned issue that consists of new shares can considerably dilute the holdings of existing shareholders because it increases the total amount of shares on the secondary market. Current shareholders will experience a reduction in their percentage of equity ownersh♚ip in the company. As the company issues more shares, each existing shareholder owns a smaller part of the company, thus diluting or reducing the value of each share.

The 澳洲幸运5官方开奖结果体彩网:dangers of share dilution can negatively impact the value of a shareholder's investment and lead to a decline in the company's share price as investors respond by selling-off the company. 澳洲幸运5官方开奖结果体彩网:Subscription rights are one way a company can protect shareholders from some of the effects of dilution. Subscription rights give existing shareholders the right to purchase shares of the seasoned issue, often at a discounted price, before the ༺company opens up the new shares to the broader market.

Non-Dilutive Seasoned Issues

Seasoned issues from existing shareholders, however, do not dilute existing shareholders as this scenario does not create additional shares. In many cases, seasoned issues from existing shareholders involve founders or other managers (such as 澳洲幸运5官方开奖结果体彩网:venture capitalists) selling all o▨r a portion of their stakes in a company.

This is common in situations where a company's original IPO included a "lock-up" period during which the founding shareholders were disallowed from selling their shares. Seasoned issues, thus, are a preferred method for founding shareholders to monetize their positions.

Criticism of Seasoned Issues

Companies will frequently issue new shares as a way to raise money to fund new projects or to pay down debt. Investors may construe a seasoned issue as a sign the company is having financial problems. They may see it as a signal the company is running short on cash. This news can cause the price of both the 澳洲幸运5官方开奖结果体彩网:outstanding shares and the new shares to fall. 澳洲幸运5官方开奖结果体彩网:Investor sentiment may turn negative against the company as existဣing shareh🐠olders begin to experience the financial impact of share dilution.

Also, selling large volumes of shares—especially one that's 澳洲幸运5官方开奖结果体彩网:thinly traded—can create downward pressure on a stock's price. For these reasons, it's important for an investor to consider multiple angﷺles of a company's financial health when considering buying into a seasoned iss💃ue.

Examples of a Seasoned Issue

Consider Company ABC, a public company that wants to sell additional shares in a seasoned issue in order to raise money for a new factory. To accomplish this outcome, Company ABC hires an investment bank to do the underwriting, register it with the 澳洲幸运5官方开奖结果体彩网:Securities and Exchange Commission (SEC), and handle the sale. T🍷he company receives the funds from the sale of the securities an꧒d is then able to use those funds to build their factory. In this example, the seasoned issue was dilutive to existing shareholders.

Private investors can also initiate a seasoned issue. Consider a wealthy investor with a very large block of Company XYZ shares, maybe 500,000 shares. In this type of seasoned issue, the private investor 🃏will receive the proceeds from the sale of the shares instead of the public company. This type of seasoned issue does not dilute outstanding shares.