What is a Seasoned Issue?

A seasoned issue is an additional security issuance for which there is already an established secondary market. These securities have already been traded for a sufficient period of time that investors can count on a reasonable amount of price stability and trade volume. The initial issuance price of these shares is based on the existing market price of shares that are already in circulation. Additional share offerings by blue-chip companies are considered to be seasoned issuances.

Disadvantages of a Seasoned Issue

There are several disadvantages associated with a seasoned issue, which are as follows:

Dilution. A seasoned issue can dilute the holdings of existing shareholders, which can depress the market price of the stock. This is a particular concern when the shares are already thinly traded. However, this is not the case when the shares being sold are from the holdings of existing issuer owners (such as the founders), since the total pool of shares issued and outstanding does not change.
Sign of financial weakness. A seasoned issue may be construed by investors to be a sign of financial weakness, such as having cash flow difficulties. If this view is widespread in the marketplace, then the issuer’s share price may fall due to a lack of demand or short selling, negatively impacting both new and existing shareholders.
Compliance issues. A seasoned issue requires the issuer to comply with various regulatory filings and disclosures, which can be time-consuming and increase costs.
Market timing risk. If a company chooses the wrong time to issue additional shares—such as when market conditions are poor—the offering might not raise as much capital as expected, or the stock price could take a bigger hit.