callable

Examples of callable in the following topics:

• Call Provisions

  • Call dates are the dates on which callable bonds can be redeemed early.
  • A European callable has only one call date.
  • This is a special case of a Bermudan callable.
  • Most callable bonds allow the issuer to repay the bond at par.
  • With a callable bond, investors have the benefit of a higher coupon than they would have had with a straight, non-callable bond.

• Deciding to Refund Bonds

  • Refunding occurs when an entity that has issued callable bonds calls those debt securities to issue new debt at a lower coupon rate.
  • Refunding occurs when an entity that has issued callable bonds calls those debt securities from the debt holders with the express purpose of reissuing new debt at a lower coupon rate.
  • On the contrary, nonrefundable bonds may be callable, but they cannot be re-issued with a lower coupon rate (i.e., they cannot be refunded).

• Preferred Stock Rules and Rights

  • Preferred stock can include rights such as preemption, convertibility, callability, and dividend and liquidation preference.
  • The following features are usually associated with preferred stock: Preference in dividends preference in assets, in the event of liquidation, convertibility to common stock, callability, and at the option of the corporation.

• Sinking Funds

  • The firm may repurchase a fraction of outstanding bonds at a special call price associated with the sinking fund provision (they are callable bonds).
  • However, if the bonds are callable, this comes at a cost to creditors, because the organization has an option on the bonds: The firm will choose to buy back discount bonds (selling below par) at their market price,while exercising its option to buy back premium bonds (selling above par) at par.
  • In this case, the firm's gain is the bondholder's loss–thus callable bonds will typically be issued at a higher coupon rate, reflecting the value of the option.

• Maturity Date

  • However, it is important to note that bonds are sometimes "callable,"which means that the issuer of the debt is able to pay back the principal at any time.
  • Thus, investors should inquire, before buying any fixed-income securities, whether the bond is callable or not.

• Yield to Maturity

  • Yield to call: when a bond is callable (can be repurchased by the issuer before the maturity), the market looks also to the Yield to call, which is the same calculation of the YTM, but assumes that the bond will be called, so the cash flow is shortened.
  • Yield to worst: when a bond is callable, puttable, exchangeable, or has other features, the yield to worst is the lowest yield of yield to maturity, yield to call, yield to put, and others.

• Provisions of Preferred Stock

  • These shares are callable shares.

• Preferred Stock

• The Cost of Preferred Stock

  • Preferred stock may also be callable or convertible, meaning that the company has the option to purchase the shares from shareholders at anytime for any reason - usually for a premium - or convert the shares to common stock.

• Issuing Stock

  • Similar to bonds, preferred shares are rated by credit-rating companies and are also callable by the company.