Nonrefundable bonds

CFA Level I Fixed Income
#1

Hi

please can someone explain me a nonrefundable bond

Thanks

#2

Sure. A non-refundable bond is simply a bond that a company is restricted from re-deeming early by using the proceeds from issuing an even cheaper bond to re-deem the first bond.

Here’s how I visualize it:

Walmart has one type of bonds outstanding (Bonds X). Let’s say they find it in their best interest to redeem those bonds. They don’t want to use cash to redeem those bonds and in the current environment they can issue bonds for even cheaper, so they issue new bonds (Bonds Y). They use the proceeds they got from Bonds Y to redeem Bonds X.

If they are NOT allowed to do that, then the bonds are Non-Refundable.

#3

Thanks a lot!