period of call protection

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Period of Call Protection

In callable bonds, a period of time during which a bond may not be prematurely redeemed. Interest payments are guaranteed during the call protection period but not afterward. The bond may be redeemed at any point after the call date, which means that the issuer could return the principal to bondholders and interest payments would cease. The period of call protection exists to protect bondholders from the risk that interest rates will fall before the call date. The period of time is often called the cushion.

period of call protection

References in periodicals archive ?
The proposed refinancing is expected to include changes to the pricing terms of the existing credit facility to reflect more favorable current market pricing, a one year maturity date extension and a six month extension of the call protection period for lenders from the effective date.
Between 1982 and 1992, there were 31 bonds issued with no call protection and 947 bonds issued with an absolute call protection period. The bonds with no call protection and absolute call protection show a much shorter maturity than the nonrefundable bonds; a larger proportion of these bonds were called prior to 1996.
Mean Freely Callable Bonds Number of Issues 12 Number of Firms 11 Amount Issued (Million $) 140.3 160.4 Offer Yield (%) 14.2 12.4 Maturity (Years) 17.0 16.3 Bonds with a Call Protection Period Number of Issues 441 Number of Firms 237 Amount Issued (Million $) 100.0 144.7 Offer Yield (%) 9.8 10.1 Maturity (Years) 10.0 13.6 Length of Call Protection (Years) 7.0 7.1 Speculative Grade Med.
The first is the call protection period. This refers to the period of time which must pass before the issuer can call the bonds for the purpose of replacing them with lower cost debt.
Generally (keeping the call protection period constant), the longer the maturity, the greater the option value as there is more opportunity for interest rates to decline to permit profitable exercise.
Under the proposed refinancing, all of the terms of the existing credit facility would remain the same, except that the pricing terms would be changed to reflect more favorable current market pricing and the call protection period for lenders would be extended from October 15, 2013 to December 31, 2013.