Prerefunding

Prerefunding

Procedure of floating a second bond at a lower interest rate in order to pay off the first bond at the first call date and to reduce overall borrowing costs.

Prerefunding

The act or practice of a company issuing a second bond with a lower coupon rate in order to pay off a previously issued callable bond. In this circumstance, the callable bond is referred to as a prerefunded bond. Companies engage in prerefunding when more favorable interest rates become available, reducing the company's overall borrowing costs.

prerefunding

The placing of funds with a trustee in order to retire a bond issue as a liability before the call date. Also called advance refunding. See also arbitrage bond.

Prerefunding.

Prerefunding may occur when a corporation plans to redeem a callable bond before its maturity date. If that's the case, the bond is identified as a pre-refunded bond.

To prerefund, the issuer sells a second bond with a longer maturity or a lower coupon rate, or both, and invests the amount it raises in US Treasury notes or other securities that are essentially free of default risk.

The specific securities are typically chosen because their maturity dates correspond to the date on which the company will use the money to redeem the first bond.

References in periodicals archive ?
New York: Fitch Ratings has withdrawn its ratings for the following bonds due to prerefunding activity:
NEW YORK -- Fitch Ratings has withdrawn its ratings on certain maturities for the following Utica (NY) bonds due to prerefunding activity:
Securities and Exchange Commission, withdrew its ratings for the following bonds due to prerefunding activity.
NEW YORK -- Fitch Ratings has withdrawn its ratings for the following Hendricks County Building Facilities Corporation (IN) bond due to prerefunding activity:
NEW YORK -- Fitch Ratings has withdrawn its ratings on certain maturities of the following bond due to prerefunding activity:
NEW YORK -- Fitch Ratings has withdrawn its ratings for the following Arizona Sports and Tourism Authority (AZ) bond due to prerefunding activity:
NEW YORK -- Fitch Ratings has withdrawn its ratings on the following bond due to prerefunding activity:
SAN FRANCISCO -- Fitch Ratings has withdrawn its 'AA-' rating on South Weber, Utah's sales tax revenue bonds, series 2004 due to prerefunding of all maturities.
NEW YORK -- Fitch Ratings has withdrawn its ratings on certain maturities for the following Hawaii, State of (HI) bonds due to prerefunding activity:
NEW YORK -- Fitch Ratings has withdrawn its ratings on certain maturities for the following Tampa-Hillsborough County Expressway Authority (FL) bond due to prerefunding activity:
NEW YORK -- Fitch Ratings has withdrawn its ratings on certain maturities for the following King George County Industrial Development Authority (VA) bond due to prerefunding activity:
NEW YORK -- Fitch Ratings has withdrawn its ratings on certain maturities for the following Monmouth County, NJ bonds due to prerefunding activity: