Definition of High-coupon bond refunding

High-coupon bond refunding

refunding of a high-coupon bond with a new, lower coupon bond.

Accrual bond

A bond on which interest accrues, but is not paid to the investor during the time of accrual.
The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.

Bearer bond

bonds that are not registered on the books of the issuer. Such bonds are held in physical form by
the owner, who receives interest payments by physically detaching coupons from the bond certificate and
delivering them to the paying agent.

Bond

bonds are debt and are issued for a period of more than one year. The U.S. government, local
governments, water districts, companies and many other types of institutions sell bonds. When an investor
buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the
loan at a specified time. Interest-bearing bonds pay interest periodically.

Bond agreement

A contract for privately placed debt.

Bond covenant

A contractual provision in a bond indenture. A positive covenant requires certain actions, and
a negative covenant limits certain actions.

Bond equivalent yield

bond yield calculated on an annual percentage rate method. Differs from annual
effective yield.

Bond indenture

The contract that sets forth the promises of a corporate bond issuer and the rights of
investors.

Bond indexing

Designing a portfolio so that its performance will match the performance of some bond index.

Bond points

A conventional unit of measure for bond prices set at $10 and equivalent to 1% of the $100 face
value of the bond. A price of 80 means that the bond is selling at 80% of its face, or par value.

Bond value

With respect to convertible bonds, the value the security would have if it were not convertible
apart from the conversion option.

Bond-equivalent basis

The method used for computing the bond-equivalent yield.

Bond-equivalent yield

The annualized yield to maturity computed by doubling the semiannual yield.

BONDPAR

A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the
individual securities held in the portfolio. bondPAR decomposes the return into those elements beyond the
manager's control--such as the interest rate environment and client-imposed duration policy constraints--and
those that the management process contributes to, such as interest rate management, sector/quality allocations,
and individual bond selection.

Brady bonds

bonds issued by emerging countries under a debt reduction plan.

Bull-bear bond

bond whose principal repayment is linked to the price of another security. The bonds are
issued in two tranches: in the first tranche repayment increases with the price of the other security, and in the
second tranche repayment decreases with the price of the other security.

Bulldog bond

Foreign bond issue made in London.

Collateral trust bonds

A bond in which the issuer (often a holding company) grants investors a lien on
stocks, notes, bonds, or other financial asset as security. Compare mortgage bond.

Completion bonding

Insurance that a construction contract will be successfully completed.

Conflict between bondholders and stockholders

These two groups may have interests in a corporation that
conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective
covenants work to resolve these conflicts.

Convertible bonds

bonds that can be converted into common stock at the option of the holder.

Convertible eurobond

A eurobond that can be converted into another asset, often through exercise of
attached warrants.

Corporate bonds

Debt obligations issued by corporations.

Coupon

The periodic interest payment made to the bondholders during the life of the bond.

Coupon equivalent yield

True interest cost expressed on the basis of a 365-day year.

Coupon payments

A bond's interest payments.

Coupon rate

In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually
paid twice a year.

Current coupon

A bond selling at or close to par, that is, a bond with a coupon close to the yields currently
offered on new bonds of a similar maturity and credit risk.

Current-coupon issues

Related: Benchmark issues

Cushion bonds

high-coupon bonds that sell at only at a moderate premium because they are callable at a
price below that at which a comparable non-callable bond would sell. Cushion bonds offer considerable
downside protection in a falling market.

Debenture bond

An unsecured bond whose holder has the claim of a general creditor on all assets of the
issuer not pledged specifically to secure other debt. Compare subordinated debenture bond, and collateral
trust bonds.

Deep-discount bond

A bond issued with a very low coupon or no coupon and selling at a price far below par
value. When the bond has no coupon, it's called a zero coupon bond.

Discount bond

Debt sold for less than its principal value. If a discount bond pays no interest, it is called a
zero coupon bond.

Dollar bonds

Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with
"U.S. Dollar" bonds, a common term of reference in the Eurobond market.

Dollar price of a bond

Percentage of face value at which a bond is quoted.

Equivalent bond yield

Annual yield on a short-term, non-interest bearing security calculated so as to be
comparable to yields quoted on coupon securities.

Eurobond

A bond that is (1) underwritten by an international syndicate, (2) offered at issuance
simultaneously to investors in a number of countries, and (3) issued outside the jurisdiction of any single
country.

Eurodollar bonds

Eurobonds denominated in U.S.dollars.

Euroyen bonds

Eurobonds denominated in Japanese yen.

Extendable bond

bond whose maturity can be extended at the option of the lender or issuer.

Flower bond

Government bonds that are acceptable at par in payment of federal estate taxes when owned by
the decedent at the time of death.

Foreign bond

A bond issued on the domestic capital market of anther company.

Foreign bond market

That portion of the domestic bond market that represents issues floated by foreign
companies to governments.

Full coupon bond

A bond with a coupon equal to the going market rate, thereby, the bond is selling at par.

General obligation bonds

Municipal securities secured by the issuer's pledge of its full faith, credit, and
taxing power.

Global bonds

bonds that are designed so as to qualify for immediate trading in any domestic capital market
and in the Euromarket.

Government bond

See: Government securities.

Hell-or-high-water contract

A contract that obligates a purchaser of a project's output to make cash
payments to the project in all events, even if no product is offered for sale.

High price

The highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits.

High-yield bond

See:junk bond.

Highly leveraged transaction (HLT)

Bank loan to a highly leveraged firm.

Income bond

A bond on which the payment of interest is contingent on sufficient earnings. These bonds are
commonly used during the reorganization of a failed or failing business.

Indexed bond

bond whose payments are linked to an index, e.g. the consumer price index.

Industrial revenue bond (IRB)

bond issued by local government agencies on behalf of corporations.

Insured bond

A municipal bond backed both by the credit of the municipal issuer and by commercial
insurance policies.

International bonds

A collective term that refers to global bonds, Eurobonds, and foreign bonds.

Investment grade bonds

A bond that is assigned a rating in the top four categories by commercial credit
rating companies. For example, S&P classifies investment grade bonds as BBB or higher, and Moodys'
classifies investment grade bonds as Ba or higher. Related: high-yield bond.

Junk bond

A bond with a speculative credit rating of BB (S&P) or Ba (Moody's) or lower is a junk or high
yield bond. Such bonds offer investors higher yields than bonds of financially sound companies. Two
agencies, Standard & Poors and Moody's investor Services, provide the rating systems for companies' credit.

Level-coupon bond

bond with a stream of coupon payments that are the same throughout the life of the bond.

Limited-tax general obligation bond

A general obligation bond that is limited as to revenue sources.

Long bonds

bonds with a long current maturity. The "long bond" is the 30-year U.S. government bond.

Long coupons

1) bonds or notes with a long current maturity.
2) A bond on which one of the coupon periods, usually the first, is longer than the other periods or the standard period.

Low-coupon bond refunding

refunding of a low coupon bond with a new, higher coupon bond.

Long bonds

bonds with a long current maturity. The "long bond" is the 30-year U.S. government bond.

Long coupons

1) bonds or notes with a long current maturity.
2) A bond on which one of the coupon
periods, usually the first, is longer than the other periods or the standard period.

Mismatch bond

Floating rate note whose interest rate is reset at more frequent intervals than the rollover
period (e.g. a note whose payments are set quarterly on the basis of the one-year interest rate).

Mortgage bond

A bond in which the issuer has granted the bondholders a lien against the pledged assets.
Collateral trust bonds

Municipal bond

State or local governments offer muni bonds or municipals, as they are called, to pay for
special projects such as highways or sewers. The interest that investors receive is exempt from some income taxes.

Net advantage of refunding

The net present value of the savings from a refunding.

Pass-through coupon rate

The interest rate paid on a securitized pool of assets, which is less than the rate
paid on the underlying loans by an amount equal to the servicing and guaranteeing fees.

Positive covenant (of a bond)

A bond covenant that specifies certain actions the firm must take. Also called
and affirmative covenant.

Premium bond

A bond that is selling for more than its par value.

Prerefunded bond

Refunded bond.

Pure-discount bond

A bond that will make only one payment of principal and interest. Also called a zerocoupon
bond or a single-payment bond.

Put bond

A bond that the holder may choose either to exchange for par value at some date or to extend for a
given number of years.

Refunded bond

Also called a prerefunded bond, one that originally may have been issued as a general
obligation or revenue bond but that is now secured by an "escrow fund" consisting entirely of direct U.S.
government obligations that are sufficient for paying the bondholders.

Refunding

The redemption of a bond with proceeds received from issuing lower-cost debt obligations
ranking equal to or superior to the debt to be redeemed.

Registered bond

A bond whose issuer records ownership and interest payments. Differs from a bearer bond
which is traded without record of ownership and whose possession is the only evidence of ownership.

Revenue bond

A bond issued by a municipality to finance either a project or an enterprise where the issuer
pledges to the bondholders the revenues generated by the operating projects financed, for instance, hospital
revenue bonds and sewer revenue bonds.

Samurai bond

A yen-denominated bond issued in Tokyo by a non-Japanese borrower. Related: bulldog
bond and Yankee bond.

Serial bonds

Corporate bonds arranged so that specified principal amounts become due on specified dates.
Related: term bonds.

Series bond

bond that may be issued in several series under the same indenture.

Shogun bond

Dollar bond issued in Japan by a nonresident.

Short bonds

bonds with short current maturities.

Single-payment bond

A bond that will make only one payment of principal and interest.

Speculative grade bond

bond rated Ba or lower by Moody's, or BB or lower by S&P, or an unrated bond.

Step-up bond

A bond that pays a lower coupon rate for an initial period which then increases to a higher
coupon rate. Related: Deferred-interest bond, Payment-in-kind bond

Stopping curve refunding rate

A refunding rate that falls on the stopping curve.

Stratified sampling bond indexing

A method of bond indexing that divides the index into cells, each cell
representing a different characteristic, and that buys bonds to match those characteristics.

Subordinated debenture bond

An unsecured bond that ranks after secured debt, after debenture bonds, and
often after some general creditors in its claim on assets and earnings. Related: Debenture bond, mortgage
bond, collateral trust bonds.

Sushi bond

A eurobond issued by a Japanese corporation.

Term bonds

Often referred to as bullet-maturity bonds or simply bullet bonds, bonds whose principal is
payable at maturity. Related: serial bonds

Treasury bonds

Debt obligations of the U.S. Treasury that have maturities of 10 years or more.

U.S. Treasury bond

U.S. government debt with a maturity of more than 10 years.

Variable rated demand bond (VRDB)

Floating rate bond that can be sold back periodically to the issuer.

Weighted average coupon

The weighted average of the gross interest rate of the mortgages underlying the
pool as of the pool issue date, with the balance of each mortgage used as the weighting factor.

Yankee bonds

Foreign bonds denominated in US$ issued in the United States by foreign banks and
corporations. These bonds are usually registered with the SEC. For example, bonds issued by originators with
roots in Japan are called Samurai bonds.

Z bond

Also known as an accrual bond or accretion bond; a bond on which interest accretes interest but is not
paid currently to the i nvestor but rather is accrued, with accrual added to the principal balance of the Z and
becoming payable upon satisfaction of all prior bond classes.

Zero coupon bond

Such a debt security pays an investor no interest. It is sold at a discount to its face price
and matures in one year or longer.

Zero-coupon bond

A bond in which no periodic coupon is paid over the life of the contract. Instead, both the
principal and the interest are paid at the maturity date.

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