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Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
Describing a bond that may not be retired for a certain number of years or until maturity. Nonrefundable bonds protect bondholders from the risk that the issuer may effectively refinance a bond at a lower interest rate, which would deprive bondholders of coupon payments to which they would otherwise be entitled. Most bonds are nonrefundable for at least five or 10 years after issue. See also: Refundable.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
A provision of some bond issues that prohibits the issuers from retiring the bonds before a specified date on which funds for the retirement will be raised externally (that is, from outside the issuing firm). Essentially, this provision restricts a borrower from taking advantage of lower interest rates by replacing a bond issue that carries a high coupon rate of interest with a new bond issue that carries a reduced coupon rate of interest. Most bonds are nonrefundable for five to ten years from the date of issue. However, when the funds are raised internally, the bonds ordinarily may be called for some other reason such as a reorganization or merger. A nonrefundable feature works to the advantage of the investor because the bonds are usually not refunded unless interest rates have fallen below the coupon. Compare noncallable.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.