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Extraordinary redemption

Категорія — Ринок облігацій США
Extraordinary redemption is a clause in a bond prospectuses, typical for US municipal bonds, which gives the issuer the right to early redemption of the bond under a call option due to an event that negatively affects the source of the bond’s yield or the bond itself . Such a clause allows the issuer to redeem the security at par before the original maturity date. In this case, events can be both material and non-material in nature. In case of events of a material nature, the negative impact occurs directly on the object itself, which provides the yield on the bond (airport, water supply station, etc.). In the event of intangible events, the financial nature of the bond is negatively impacted. For example, with a decrease in interest rates, a municipality or its equivalent has the opportunity to refinance its debt obligations by issuing another bond with a lower interest rate. In the event of intangible events, the dates of call options are known in advance, on which the issuer must assess the possibility of reducing its debt obligations by refinancing the current bond by issuing a new bond. In case of a positive decision, the bondholders are duly notified and redemption takes place.
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