The Life Cycle of Make-Whole Call Provisions

Posted: 1 Sep 2012 Last revised: 6 Feb 2018

Eric A. Powers

University of South Carolina - Darla Moore School of Business

Scott Brown

University of Puerto Rico

Date Written: January 26, 2018

Abstract

Common perception is that these bonds behave no differently than non-callable bonds due to call provision structure. However, make-whole callable bonds are almost twice as likely to be retired early as equivalent non-callable bonds. Analysis of which bonds/firms include make-whole call provisions as well as analysis of retirement events suggests the call provisions aid firms in precautionary refinancing and in paving the way for major corporate events like M&A. Detailed analysis of news reports reveal three motivating rationales: 1) to refund the debt at what are perceived to be low current interest rates, 2) as a result of a merger or acquisition, and 3) as a mechanism for paying out excess cash.

Keywords: call provision, make-whole

Suggested Citation

Powers, Eric A. and Brown, Scott, The Life Cycle of Make-Whole Call Provisions (January 26, 2018). Available at SSRN: https://ssrn.com/abstract=2139497 or http://dx.doi.org/10.2139/ssrn.2139497

Eric A. Powers (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-4928 (Phone)

Scott Brown

University of Puerto Rico ( email )

Ponce De Leon Avenue
00931-3300
Puerto Rico

HOME PAGE: http://coursetrading.com

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