What does make-whole call only mean?
What Is a Make-Whole Call? A make-whole call provision is a type of call provision on a bond allowing the issuer to pay off remaining debt early. The issuer typically has to make a lump-sum payment to the investor.
What is a make-whole premium?
A “make-whole” premium is generally a present-value calculation that discounts the payments that would have been received if the debt is not prepaid, calculated based on comparable treasury yields.
What is make-whole spread?
Make-Whole Spread means, with respect to any Series of Equipment Notes, the percentage specified for the applicable Series as such in Schedule I to the Indenture (as amended, in the case of any Additional Series, new Series A Equipment Notes or new Additional Series issued pursuant to Section 2.02 of the Indenture, at …
Is a callable bond good for investors?
Callable bonds can be called away by the issuer before the maturity date, making them riskier than noncallable bonds. However, callable bonds compensate investors for their higher risk by offering slightly higher interest rates. Callable bonds are a good investment when interest rates remain unchanged.
How does a make whole call provision differ from a traditional call provision?
What is meant by a make-whole call provision? With a traditional call provision, the call price is fixed, With a make-whole call provision, the payment when the issuer calls a bond is determined by the present value of the remaining payments discounted at a small spread over a maturity-matched Treasury yield.
How is a make whole call calculation?
With a make-whole call, the call price is calculated as the maximum of the par value and the present value of the bond’s remaining payments discounted at the prevailing risk-free rate plus a pre-specified spread known as the make-whole premium.
What is a make whole fundamental change?
Make-Whole Fundamental Change means any transaction or event that constitutes a Fundamental Change (as defined above and determined after giving effect to any exceptions to or exclusions from such definition, but without regard to the proviso in clause (b) of the definition thereof).
How does a make-whole call provision differ from a traditional call provision?
How do you calculate make-whole?
What is a Make-Whole Call Provision?
- The amount that the issuer must pay the lender is determined by calculating the net present value of the coupon payments.
- The remaining amount for the issuer to settle is determined by taking the net present value.
- The discount rate.
What are the benefits of a callable bond?
A callable bond allows companies to pay off their debt early and benefit from favorable interest rate drops. A callable bond benefits the issuer, and so investors of these bonds are compensated with a more attractive interest rate than on otherwise similar non-callable bonds.
Are callable bonds riskier?
Callable bonds are more risky for investors than non-callable bonds because an investor whose bond has been called is often faced with reinvesting the money at a lower, less attractive rate. As a result, callable bonds often have a higher annual return to compensate for the risk that the bonds might be called early.
Why is a make whole call provision probably a misnomer?
Why is a make-whole call provision probably a misnomer? The sinking fund provision means a portion of the issue retired periodically. This could be disadvantageous if interest rates fall.
