original issue discount

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Original Issue Discount

The difference between a bond's face value and the amount for which it is sold by the issuer. Many bonds, especially those with low interest rates, are issued at a price less than par in order to entice buyers. Generally, the lower the interest rate, the greater the original issue discount, with zero-coupon bonds having the largest. Short of default, the original issue discount is a guaranteed profit for a bondholder, as bonds must be redeemed at face value. It is considered a form of interest and may be taxed as such.

Original issue discount.

A bond or other debt security that is issued at less than par but can be redeemed for full par value at maturity is an original issue discount security.

The appeal, from an investor's perspective, is being able to invest less up front while anticipating full repayment later on.

Issuers like these securities as well because they don't have to pay periodic interest. Instead, the interest accrues during the term of the bond so that the total interest when combined with the principal equals the full par value at maturity.

Zero-coupon bonds are a popular type of original issue discount security. The drawback, from the investor's perspective is that the imputed interest that accumulates is taxable each year even though that interest has not been paid.

The exceptions are interest on municipal zero-coupons, which are tax exempt, or on zeros held in a tax-deferred or tax-exempt accounts.

original issue discount

See imputed interest.

References in periodicals archive ?
Payments that are covered include (1) compensation for workers who are not considered employees; (2) dividends and other corporate distributions; (3) interest; (4) medical and health care payments; (5) rents; (6) royalties; (7) profit-sharing distributions; (8) retirement plan distributions; (9) original issue discounts; (10) prizes and awards; (11) cash payments for fish to anyone in the trade or business of catching fish; (12) debt cancellations (treated as payment to debtor); (13) payments of Indian gaming profits to tribal members; and (14) cash payments over $10,000.
As a result, these customised credit strategies are typically a combination of contractual cash coupons with other accretive features such as accrued interest, original issue discounts, prepayment penalties and/or equity warrants that might make sense for SMEs.
The trend has been evidenced by increased competition for larger issues driving reduced pricing, lower original issue discounts, rescission of LIBOR floors, upsizing of facilities and the reemergence of second-lien tranches and dividend recaps.
Original issue discounts (OIDs), market discounts, and premiums arise when there is a difference between the acquisition price of a debt instrument and the total principal amounts that will be repaid on the security when it matures.
Payments that are covered include the following: compensation for workers who are not considered employees; dividends and other corporate distributions; interest; rents; royalties; profit-sharing distributions; retirement plan distributions; original issue discounts; prizes and awards; medical and health care payments; payments of Indian gaming profits to tribal members; debt cancellations (treated as payment to debtor); and cash payments over $10,000.
Payments that are covered Include: (1) compensation for workers who are not considered employees, (2) dividends and other corporate distributions, (3) interest, (4) rents, (5) royalties, (6) profit-sharing distributions, (7) retirement plan distributions, (8) original issue discounts, (9) prizes and awards, (10) medical and health care payments, (11) debt cancellations (treated as payment to debtor), (12) payments of Indian gaming profits to tribal members, and (13) cash payments over $10,000.
Payments that are covered include: (1) compensation for workers who are not considered employees; (2) dividends and other corporate distributions; (3) interest; (4) rents; (5) royalties (6) profit-sharing distributions; (7) retirement plan distributions; (8) original issue discounts; (9) prizes and awards; (10) medical and health care payments; (11) debt cancellations (treated as payment to debtor); (12) payments of Indian gaming profits to tribal members; and (13) cash payments over $10,000.
Payments that are covered include: (1) compensation for workers who are not considered employees; (2) dividends and other corporate distributions; (3) interest; (4) rents; (5) royalties; (6) profit-sharing distributions; (7) retirement plan distributions; (8) original issue discounts; (9) prizes and awards; (10) medical and health care payments; (11) debt cancellations (treated as payment to debtor); (12) payments of Indian gaming profits to tribal members; and (13) cash payments over $10,000.
Payments that are covered include (1) compensation for workers who are not considered employees, (2) dividends and other corporate distributions, (3) interest, (4) rents, (5) royalties, (6) profit-sharing distributions, (7) retirement plan distributions, (8) original issue discounts, (9) prizes and awards, (10) medical and health care payments, (11) debt cancellations (treated as payment to debtor), (12) payments of Indian gaming profits to tribal members and (13) cash payments over $10,000.
Payments that are covered include (1) compensation for workers who are not considered employees; (2) dividends and other corporate distributions; (3) interest; (4) rents; (5) royalties; (6) payments to attorneys; (7) profit-sharing distributions; (8) retirement plan distributions; (9) original issue discounts; (10) prizes and awards; (11) medical and health care payments; (12) debt cancellations (treated as payment to debtor); (13) payments of Indian gaming profits to tribal members; and (14) cash payments over $10,000.
Payments that are covered include: (1) compensation for workers who are not considered employees, (2) dividends and other corporate distributions, (3) interest, (4) amounts paid in real estate transactions, (5) rents, (6) royalties, (7) amounts paid in broker and barter exchange transactions, (8) payments to attorneys, (9) profit-sharing distributions, (10) retirement plan distributions, (11) original issue discounts, (12) prizes and awards, (13) medical and health care payments, (14) debt cancellations (treated as payment to debtor), (15) payments of Indian gaming profits to tribal members, and (16) cash payments over $10,000.
Payments that are covered include: (1) compensation for workers who are not considered employees; (21 dividends and other corporate distributions; (3) interest; (4) amounts paid in real estate transactions; (5) rents; (6) royalties; (7) amounts paid in broker and barter exchange transactions; (8) payments to attorneys; (9) profit-sharing distributions; (10) retirement plan distributions; (11) original issue discounts; (12) prizes and awards; (13) medical and health care payments; (14) debt cancellations (treated as payment to debtor); and (15) cash payments over $10,000.