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What benefits can the issuer of speculative-grade corporate bonds realize by including a call feature in...

  1. What benefits can the issuer of speculative-grade corporate bonds realize by including a call feature in its bonds?
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Answer #1

A call feature in bond allows the issuer to redeem the bonds before maturity. So in case, the interest rate of the market falls below the coupon rate of the issued bond then the issuer can clear the debt and reborrow it at a lower rate. If the borrower thinks they can clear the debt early they can also do that by paying it earlier.

So the benefits attached here are:

  1. Clearings debts earlier and hence making the balance sheet lean
  2. Benefit in case of favourable interest rate drop to the issuer
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