Early retirement provisions

Call provision
· state whether issuer can retire the bond before maturity date
o noncallable
o freely callable
o deferred call provision- initially noncallable but after which time it becomes callable.

Call schedule
· Call price represents a premium above par usually. If not being called, the call price will decline over price according to a schedule until reach par at maturity.

Refunding provision
· state whether issuer can call the bond using proceeds of a new debt issue

Nonrefundable bond
· typically freely callable but nonrefundable, prohibit premature retirement from proceeds of a lower coupon bond

Note:
· A bond can be callable with or without being refundable. But a refundable bond must be callable.
· A callable, refundable bond is the easiest one to call.
· A no-call provision in early years gives the investor some protection.