Call me back - Redemption features in HY bonds (9fin Educational)


Deep Dive

Call me back - Redemption features in HY bonds (9fin Educational)

Nathan Mitchell's avatar
Brian Dearing's avatar
  1. Nathan Mitchell
  2. +Brian Dearing
13 min read

In this edition of 9fin educational, we take a look at the range of redemption clauses in HY bonds and the trends that favour issuers and sponsors.

First, as a bit of background, HY bonds, unlike traditional loans, contain a “non-call” period, during which the company can’t (with a few exceptions discussed below) redeem their outstanding bonds without incurring a penalty, known as a “make-whole premium”. The idea is that investors in bonds typically don’t want their money back early, instead they want a stable stream of income (the coupon payments) until maturity. As a result, the “non-call” period in fixed rate offerings is typically set at two years for a bond with a five-year tenor (expressed as 5NC2), and three years for a bond with a seven-year tenor (7NC3). Floating rate offerings, due to their nature, typically only have a non-call period of one year, regardless of tenor.

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