Stated maturity: Overview, definition and example
What is stated maturity?
Stated maturity refers to the specified date on which a financial instrument, such as a bond, loan, or other debt security, is due to be fully paid off, including both the principal and any remaining interest. The stated maturity is outlined in the terms of the agreement and marks the end of the borrowing period. On this date, the issuer is required to repay the full principal amount to the holder or lender.
For example, a company might issue a bond with a stated maturity of 10 years, meaning the bond will mature 10 years after the issue date, at which point the principal is due to be repaid to the bondholder.
Why is stated maturity important?
The stated maturity is important because it establishes a clear timeline for the repayment of debt, providing both the borrower (or issuer) and the lender (or bondholder) with a set due date. It helps in managing cash flow, financial planning, and ensuring that the borrower has the necessary funds available to meet their repayment obligations.
For businesses and investors, the stated maturity is crucial for predicting cash flows, scheduling repayments, and assessing the risks associated with holding or issuing debt. It also serves as a benchmark for the duration of the debt and helps in structuring interest rates or terms based on the length of the maturity period.
Understanding stated maturity through an example
A corporation issues a 5-year bond with a stated maturity of 2028. The bondholders will receive regular interest payments throughout the bond’s life, but the stated maturity in 2028 indicates when the corporation is required to pay back the principal amount (the original amount borrowed) to the bondholders.
In another example, a bank loan taken out by a small business has a stated maturity of 3 years from the loan agreement date. The business agrees to make periodic payments during this period, and the final payment, including the remaining balance of the principal and interest, is due on the stated maturity date.
An example of stated maturity clause
Here’s how this type of clause might appear in a loan agreement or bond indenture:
“The Loan will mature on [Date], which is the stated maturity date, at which time the full principal amount, along with any accrued interest, will be due and payable by the Borrower to the Lender.”
Conclusion
Stated maturity is a key element in debt instruments and financial agreements, marking the date when the full repayment of principal and interest is due. It provides a clear timeline for debt repayment, allowing both borrowers and lenders to plan their financial activities accordingly. The stated maturity date helps manage cash flows, set expectations for repayment, and assess the risks associated with holding or issuing debt.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.