Call Date

What Is a Call Date?

The call date is a day on which the issuer has the option to recover a callable bond at par, or at a small premium to par, prior to the stated maturity date. The call date and related terms will be stated in a security's prospectus.

Understanding a Call Date

The trust indenture likewise records the call date(s) a bond can be called right on time after the call protection period closes. There could be one or different call dates over the life of the bond. The call date that promptly follows the finish of the call protection is called the first call date. The series of call dates is known as a call schedule, and for every one of the call dates, a particular redemption value is determined. Logic directs that the call date provision might be exercised if the issuer.feels that there is a benefit to refinancing the issue. Investors who rely upon the interest income generated from bonds must know about the call date while buying a bond.

A bondholder hopes to receive interest payments on their bond until the maturity date, at which point the face value of the bond is repaid. The coupons paid address interest income to the investor. Notwithstanding, there are a few bonds that are callable as illustrated in the trust indenture at the hour of issuance. Issuers of callable bonds reserve the privilege to recover the bonds prior to their maturity dates, especially during times when interest rates in the markets decline. At the point when interest rates decline, borrowers (issuers) have an opportunity to refinance the terms of the bond coupon rate at a lower interest rate, in this manner lessening their cost of borrowing. At the point when bonds are "called" before they mature, interest will presently not be paid to the investors.

Call Protection

Call risk is the risk that a bond issuer will recover a callable bond prior to maturity. This means the bondholder will receive payment on the value of the bond and, generally speaking, will be reinvesting in a less great climate — one with a lower interest rate.

To safeguard bondholders from issuers reclaiming a bond sooner than the maturity date, the trust indenture will typically feature a call protection period. The call protection is a period of time inside which a bond can't be reclaimed. For instance, a bond issued with 20 years to maturity might have a call protection period of seven years. This means that for the initial seven years of the bond's presence, paying little mind to how interest rates move in the economy, the bond issuer can't buy back the bonds from holders. The lockout period gives investors some protection as they are guaranteed interest payments on the bond for no less than seven years, after which interest income isn't guaranteed.

Special Considerations

An issuer might decide to recover its existing bonds on the call date on the off chance that interest rates are positive. In the event that rates and yields are unfavorable, issuers will probably decide to not call their bonds until a later call date or basically hold on until the maturity date to refinance. A bond issuer can exercise its option of recovering the bonds from the beginning indicated call dates.

To repay bondholders for early redemption, a premium over the face value is paid to the investors. Since call provisions place investors in a difficult situation, bonds with call provisions will quite often be worth not exactly comparable non-callable bonds. Hence, to draw investors, giving companies must offer higher coupon rates on callable bonds.

Features

• The call date, stated in a security's prospectus, empowers the issuer to recover it at or around par.
• There could be one or different call dates over the life of the bond, and for every one of the call dates, a particular redemption value is indicated.
• An issuer can exercise its callable option for early redemption on indicated call dates.