A situation in which a
bond issuer redeems a bond before its
maturity because the
revenue source paying the
coupons disappears. For example, suppose a
callable bond is issued to build a factory, and the revenue from the factory pays the interest on the bond. If the factory burns down, the company may redeem the bond at
par so it no longer has to make
interest payments. While the above example is catastrophic, most extraordinary redemptions occur for more mundane reasons; for instance, a
mortgage-backed security may be extraordinarily redeemed if too many
mortgages are
refinanced. An extraordinary redemption is also called a special call.