Callability

Feature of a security that allows the issuer to redeem the security prior to maturity by calling it in, or forcing the holder to sell it back.

Callability

A provision in an indenture that allows a bond to be redeemed before maturity. Callability allows the bond to be called at the discretion of the issuer, within certain limits. When the bond is called, the bondholder receives the par value (or sometimes slightly more) and does not receive any more coupons. Callable bonds are issued to allow the issuers to hedge against interest rate risk. That is, if interest rates fall significantly, they can call the bond and issue a new bond at a lower interest rate, reducing their liabilities. However, to protect the bondholder, most callable bonds also include call protection, which prevents the bonds from being called for a certain period of time and thereby guarantees the current interest rate for that time.

Mentioned in ?

References in periodicals archive ?

affects their callability, and how does one determine whether a class of

MINORITY SHARES UNDER THE LOUISIANA BUSINESS CORPORATION ACT: EXPULSION, OPPRESSION, AND FIDUCIARY DUTY

(41.) Gilchrist and Zakrajsek (2012) address the issue of callability in the construction of their "excess bond premium." They use a panel regression, whereby they regress individual corporate spreads on variables that capture the value of the call option, in addition to bond-specific measures of default probability.

Safety, liquidity, and the natural rate of interest

As with callability, extendibility provides managers with greater timing flexibility.

Financial contracting and managerial flexibility

To control for the risks arising from callability, a dummy variable (CALLABLE) is used, where a value of 1 indicates a callable issue and a value of 0 indicates a non-callable issue.

The interest rate effects of certification awards and underwriter types in the school district bond market

Callability and bond maturity are also important factors increasing the costs to bond issuers.

Trends in financial market concentration and their implications for market stability

Assume no special contractual provisions such as callability or convertibility.

Original-issue systematic and default risk pricing efficiency of speculative-grade bonds

Therefore, these risk-premiums do not suffer from confounding effects arising from callability of bonds.

A methodological investigation of risk exposure of bank off-balance sheet loan commitment activities

This database contains a wide range of information about corporate bond issues including the issuer, offering data, maturity data, coupon type, offering yield to maturity, seniority level, and ratings and bond characteristics such as convertibility, putability, and callability.

The notching rule for subordinated debt and the information content of debt rating

Callability constraints are: V [less than or equal to] max(Call Price, aS); [SIGMA] = 0 if V [greater than or equal to] Call Price.

An empirical comparison of convertible bond valuation models

The data contain information on monthly prices (quote and matrix), accrued interest, coupons, ratings, callability, and returns on all investment-grade corporate and government bonds for the period from January 1987 to December 1996.

Default risk in corporate yield spreads

Callability was very common prior to the 1990s, and was used in an average of more than 75% of all debt issues.

Corporate debt issuance and the historical level of interest rates

When structuring its financing, a firm must make decisions on all the relevant aspects of its debt, including leverage, maturity, callability, priority, and placement.