refunding bond

Refunding Bond

A bond that retires another bond before the first bond matures. A company may issue a refunding bond for a number of reasons, but mainly because of a decline in interest rates, which reduces the cost of funding. Refunding bonds deprive bondholders of the first bond from future coupon payments to which they would otherwise of have been entitled. Most bonds are nonrefundable for at least five or 10 years after issue, but a refunding bond may be issued afterward.

refunding bond

A bond that is issued for the purpose of retiring an outstanding bond. Issuers refund bond issues to reduce financing costs, eliminate covenants, and alter maturities. See also crossover refunding bonds, prerefunding.