Extendible Bonds

CFA Level II Fixed Income
#1

Reading 37 states that an extendible bond includes a bondholder option to extend the bond maturity. There is a blue box question which confirms that this would not be an issuer option, only a bondholder option. This just isn’t true, there are plenty of bonds with an issuer extension option.

If this comes up in the exam, does that mean I should assume it is a bondholder option only?

#2

*delete

#3

For example I found this bond with issuer extension option: State Street 2.131220% 06/15/37 (USD) ISIN: US857477AY98

there are apparently 500 others according to bloomberg

#4

They do exist. For example 3 years bond with the option to extend for 1 year. Just think of it like a 4 year putable bond, and the option to put back in 3 years

#5

Ah yes, the extendable option can also belong to issuers.

#6

So should we assume that extension options only exist for bondholders in the exam?

#7

*delete

#8

I think the option stay with the bondholder since extendible bond has similar features like a putable bond

#9

The curriculum is gospel.

#10

makes sense :slight_smile: thanks

#11

Extendible bonds can be extended after maturity, but do we need to (1) pay the bond price at maturity and extend the bond OR (2) can we exercise the option, resulting in the bond having a new maturity period?

For example, if a bond of 10-year maturity has a 5-year extension option, do we need to (1) pay the bond price at the end of 10 years and extend the bond OR (2) can we just exercise the option and the 10-year bond will now become a 15-year bond?

#12

You’re asking this as if the issuer owns the extension option.

In fact, the bondholder owns the option. If the bondholder exercises the option, the issuer simply continues to pay coupons until the new maturity date.