What does call make whole?
A make-whole call is a type of call provi- sion in a bond allowing the borrower to pay off remaining debt early. The borrow- er has to make a lump sum payment to the holder derived from an earlier agreed- upon formula based on the net present value (NPV) of future coupon payments not paid because of the call.
What is a full call on a bond?
A full call means that it is paying off the bond in its entirety, and all of the people who own shares of the bond will receive their principal back.
Why would a bond issuer exercise a call provision?
A call provision is advantageous to bond issuers because it allows them to redeem the debt before its maturity date. It is up to the issuer whether or not the bonds are repurchased earlier and the decision is based on current market conditions.
What does make whole mean?
(transitive, set phrase) To repair or restore (something). quotations ▼ (transitive, finance, law) To provide (someone), especially under the terms of a legal judgment or an agreement, with financial compensation for lost money or other lost assets.
What is a call provision?
A call provision is a stipulation on the contract for a bond—or other fixed-income instruments—that allows the issuer to repurchase and retire the debt security. Call provision triggering events include the underlying asset reaching a preset price and a specified anniversary or other date being reached.
How is make whole premium calculated?
With a make-whole call, the call price is calculated as the maximum of the par value and the present value of the bond’s remaining payments discounted at the prevailing risk-free rate plus a pre-specified spread known as the make-whole premium.
What is a partial call on a bond?
A partial call is when securities are redeemed for cash by the issuer prior to the maturity date of the instrument. Callable securities include bonds and preferred stocks. The issuer will announce the record date of the call at which time holders of settled positions may become subject to the call.
What does make whole at 50 mean?
A make whole call is a call option that allows the bond issuer to retire an outstanding bond at a “make whole” price no less than the par value ($100.00). The make whole price, set at the time of the bond issuance, is meant to compensate the bondholders, making them whole, should the issuer retire the bond early.
What is call provision of bond issue?
A call provision refers to a clause in a bond purchase contract that gives the bond’s issuer the right to redeem the bond early, before its maturity date. Callable bonds usually pay a higher coupon rate than non-callable bonds.
Who does a call provision benefit?
Pros and Cons of a Call Provision for the Issuer
The foremost benefit of a call provision for the issuer is to save interest costs in a falling interest rate environment. The issuer would redeem the bonds paying higher interest rates and issue a new one with a lower interest rate.
What does make whole mean in legal terms?
all words any words phrase. make one whole. v. to pay or award damages sufficient to put the party who was damaged back into the position he/she would have been in without the fault of another. See also: damages.
Do call provisions make bonds more risky?
Callable bonds are more risky for investors than non-callable bonds because an investor whose bond has been called is often faced with reinvesting the money at a lower, less attractive rate. As a result, callable bonds often have a higher annual return to compensate for the risk that the bonds might be called early.
What does no call provision mean?
Generally, a “no-call” provision prohibits the prepayment or redemption of debt before its maturity (or sometimes before a specified date).
What is the make whole premium?
A “make-whole” premium is generally a present-value calculation that discounts the payments that would have been received if the debt is not prepaid, calculated based on comparable treasury yields.
What is mandatory call?
Mandatory redemption is a call provision that requires an issuer to redeem bonds before their stated maturity date. Each term bond has its own mandatory redemption schedule set out in the original bond agreement. Mandatory redemption schedules are useful for managing cash flows for mandatory calls.
What is a sinking fund call?
A sinking fund call is a provision that allows a bond issuer to buy back its outstanding bonds before their maturity date at a pre-set price. The money that is used for the buyback comes from a sinking fund, an amount that is set aside from the issuer’s earnings specifically for use in security buybacks.
What is a call provision in finance?
A call provision is a clause in the contract for a bond (known as the “bond indenture”) that allows its issuer to pay off the bond before its maturity date. This is known as redeeming the bond.
What is make whole provision?
A make-whole call provision is a type of call provision on a bond allowing the issuer to pay off remaining debt early. The payment is derived from a formula based on the net present value (NPV) of previously scheduled coupon payments and the principal that the investor would have received.
How does a make whole call provision work?
What is the quality of 8s?
Quality refers to how good something is compared to other similar things. In other words, its degree of excellence. When used to describe people, it refers to a distinctive characteristic or attribute that they possess. In this sense, we can also use the term for things.
Do call provisions make bonds less risky?
Callable bonds are more risky for investors than non-callable bonds because an investor whose bond has been called must often reinvest the money at a lower, less attractive rate. As a result, callable bonds often have a higher annual return to compensate for the risk that the bonds might be called early.
What is mandatory call for bonds?
Why would a company call a bond?
An issuer may choose to call a bond when current interest rates drop below the interest rate on the bond. That way the issuer can save money by paying off the bond and issuing another bond at a lower interest rate. This is similar to refinancing the mortgage on your house so you can make lower monthly payments.
What is a partial call?
What is a make whole prepayment penalty?
So what is a make whole premium? It is a type of prepayment penalty that is imposed if the loan is paid off early to compensate the lender for the interest that it was not able to earn over the remaining term of the loan.