What is Retirement of Securities in Stock Investing
Author: George Davis
Companies have the power to buy back the shares they offered to the public. Find out why companies retire securities and what does it mean.
Companies that launch their shares in the market have the power to buy back their shares. Some companies repurchase their shares because they sold closely-held shares to fuel a passion project or generate funds for company operations. Closely-held shares are those that are owned by the founders/shareholders of the company. In a sire situation, company owners don’t have many options left other than to sell their personal shares. When these companies have enough capital, they announce the retirement of securities.
What Are Retirement of Securities?
Retirement of securities is the cancellation of stocks or bonds because their issuers have either bought these shares back or (in the case of bonds) their maturity date has reached. Shares that have been retired from the stock market carry no value, no owning privileges, nor can they be sold in the stock market.
Learning More About Retirement of Securities
Many securities are routinely bought back (canceled) by the issuing company. This is because these companies are either paying off their debt (in the case of bonds) or buying back the powers they distributed to the general public. According to the Securities Exchange Commission, shares that have been retired immediately lose their value because the amount has been paid off. In the case of bonds, when the company has paid its public debt, the bond becomes invalid.
Why do Companies Retire Securities?
This is one of the most frequently asked questions among beginner investors. While there are many reasons for a company to retire its securities, some are obvious than others. For instance, a company might want to retire its securities because the shares that were launched were owned by the board of directors, and they want to regain their power. Another reason for retiring securities could be that the company has sufficient positive NPV. Therefore, they have enough capital to take back what they shared in the stock market and strengthen their position. Finally, another reason for retiring shares from the stock market could be that there might be tax advantages for the company. Regardless of why a company retires its securities, there is always a significant benefit for the seller because they can reap substantial profits.
The most evident and obvious reason for a company to issue a buyback for its shares is to strengthen its balance sheet. When companies repurchase their shares or bonds, they no longer have a deblit balance on their balance sheet. This opens a new door of investment for the company because its financial statement is positive.
Retiring securities from the stock market is a bold move for an organization. On the investor’s end, it shows that a company has sufficient cash flow to back this purchase. This excited investors and reels in more investments in the future. However, the frequent buyback can be harmful to a company in the long run.
1. BellRing Brands, Inc. (BRBR)
2. Atlas Air Worldwide Holdings (AAWW)
3. Realogy Holdings Corp. (RLGY)
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