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The life cycle of make-whole call provisions

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

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  • Brown, Scott & Powers, Eric, 2020. "The life cycle of make-whole call provisions," Journal of Corporate Finance, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:corfin:v:65:y:2020:i:c:s0929119920302169
    DOI: 10.1016/j.jcorpfin.2020.101772
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