Private firms and entities can issue bonds to raise money. Corporate bonds are debt obligations, or IOUs, issued by private and public corporations. Companies use the funds they raise from selling bonds for a variety of purposes, from building facilities to purchasing equipment to expanding the business.
When an investor buys bonds, he or she lends money to the corporation that issued it, which promises to return the money, or principal, on a specified maturity date. Until that time, it also pays the investor a stated rate of interest, usually semiannually. The interest payments an investor receives from corporate bonds are taxable. Because corporate bonds must be sold on a taxable basis, they are less attractive as a vehicle for financing transportation investments.