call provision

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Call provision

An embedded option granting a bond issuer the right to buy back all or part of an issue prior to maturity.

Call Provision

A provision in an indenture that makes a bond callable. A callable bond allows the issuer to redeem the bond before maturity. When the bond is called, the bondholder receives the par value (or sometimes 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, the issuers 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.

call provision

The stipulation in most bond indentures that permits the issuer to repurchase securities at a fixed price or at a series of prices before maturity. This provision operates to the detriment of investors because calls on high-interest bonds usually occur during periods of reduced interest rates. Thus, an investor whose bond is called must find another investment, often one that provides a lower return. Certain preferred stock issues are also subject to call. Also called call feature. See also make-whole call provision.
Case Study Unlike most long-term corporate and municipal bonds, U.S. Treasury bonds cannot generally be called prior to their scheduled maturity dates. The U.S. Treasury last issued callable bonds in 1984 and even these bonds could only be called in the five years prior to maturity. All U.S. Treasury bonds issued after 1984 have been noncallable. The Treasury's inability to call its bonds prior to their scheduled maturities proved to be a bonanza for investors who purchased long-term Treasury securities in the mid-1980s when interest rates were relatively high. The U.S. Treasury was required to continue paying very high interest rates on this debt into the next decade, when market interest rates had declined substantially. If these bonds had been issued with a call provision, the Treasury could have retired bonds with coupons of 11% and 12% and issued new bonds with coupons of 5% and 6%, thereby saving taxpayers billions of dollars in interest expense.
Why should I check a bond's call provision before buying it? Which types of bonds have these provisions?

Bond issuers seem to call their bonds in when bond investors least want to receive their principal back—after interest rates have already dropped. If you pay close attention to a bond's call provisions, however, you can avoid experiencing losses of principal (that is, you can avoid paying big premiums for high-coupon bonds that are about to be called in at lower premium prices or, worse yet, at par). Furthermore, if you are a short maturity buyer (let's use three years for an example), you may be able to earn a higher yield for the three-year period by purchasing a longer cushion bond that is callable in three years instead of buying a bond that matures in three years. Reason: the market will generally reward you with a higher yield to the call on the cushion bond (due to the uncertainty of its actually being called in three years) compared with the yield that the market will provide you on a similar bond that will definitely mature in three years. It is important to mention that if you invest in a cushion bond and it is not called, you will be faced with the choice of either holding a longer bond than you may have intended to hold or liquidating at market value.

Stephanie G. Bigwood, CFP, ChFC, CSA, Assistant Vice President, Lombard Securities, Incorporated, Baltimore, MD

call provision

A clause in a loan instrument that gives the lender the right to accelerate the debt upon the occurrence of certain conditions.These might include filing for bankruptcy (illegal,but it's in all the promissory notes anyway),reduction in value of the collateral,occupancy levels dropping below certain minimum levels in income-producing properties,or the catchall clause “whenever the lender deems itself insecure.”As a practical matter,it would be an unwise lender who relies solely on the “deeming itself insecure”clause,because such action almost always results in litigation in which a jury,usually of the borrower's peers,gets to decide if it was reasonable under the circumstances for the lender to panic.
References in periodicals archive ?
Reportedly, the company's AGM, held on 8 May 2019, resolved, for the purpose to facilitate the company's obligations under the long-term share incentive programme LTIP 2019 resolved by the meeting, to authorise the board of directors to resolve on a directed share issue of a maximum 140,000 class C shares, subject to redemption and conversion.
However, potential drivers of upward rating momentum over a longer-term horizon could include sustained leverage below 0.15x; introduction of a more formal liquidity policy with respect to coverage of interest expenses and near-term debt maturities; meaningfully improved investment performance; mitigation of perceived key man risk via expansion and tenure of the investment management team over an extended period of time; a material increase in the absolute amount of assets under management that is held within permanent capital vehicles and thus not subject to redemption risk; and evolution of the investment strategy towards a more permanent, investment holding company-type structure, which exhibits materially longer holding periods and increased dividend upstream predictability.
interest payment dates:march 1 and september 1, beginning september 1, 2017 maturity dates: march 1, 2018 through march 1, 2021 redemption provisions:the bonds will not be subject to redemption. book-entry-only: the bonds will be book-entry-only.
The face of the certificates, she said provides that they are "subject to redemption, at the option of the Exchange, at any time as a whole, or from time to time in part, at the face amount hereof or portion thereof...." She said it was up to the exercise of the discretion of the Exchange or its Board of Governors to make the redemption.
The notes amortize based on release of assets from the reinsurance trust in an amount equal to the decline in the statutory reserve, and are subject to redemption at the issuer's option, like asset- and mortgage-backed securities.
The Norwich & Peterborough is offering a two year discounted scheme at an interest rate of 4.84pc (APR 6.3pc), with a valuation fee of pounds 225 and no arrangement fee, subject to redemption penalties.
Short Tem Discount: the Norwich & Peterborough Building Society is offering a 2 year discounted scheme at an interest rate of 2.74pc(APR5.3pc), with a valuation fee of pounds 225,and no arrangement fee, subject to redemption penalties
303(b)(2)(A), the value of the stock subject to redemption owned by the estate must exceed 35% of the AGE: the gross estate less the sum of the amounts allowable as a deduction under Sec.
Reportedly, the company's Extraordinary General Meeting, held on 7 November 2018, had resolved, for the purpose of facilitating the company's obligations under the long-term share incentive programme LTIP 2018 , to authorise the board of directors to resolve on a directed share issue of a maximum 120,000 class C shares, subject to redemption and conversion.
The notes will not be subject to redemption at the option of the holders.
--A material increase in the amount of overall AUM that is held within permanent capital vehicles and thus not subject to redemption risk;
The Norwich & Peterborough is offering a two-year discounted scheme at an interest rate of 3.24pc (APR 5.9pc), with a valuation fee of pounds 225, and no arrangement fee, subject to redemption penalties.