bond-basics

Optional Redemption

A common form of Redemption that gives the Issuer the right to retire all or part of the Bonds before their Maturity Dates.

There may be a negotiated Premium for an Optional Redemption.  It is often the case that the earlier the Bonds are redeemed or prepaid, the higher the Premium.  It is also very common that Bonds are not subject to Optional Redemption, or “callable,” for a period of ten years from the date the Bonds are issued, and in some cases Bonds are not subject to Optional Redemption for their entire maturity.  If you notice that the Bonds are not callable for more than 10.5 years after the date the Tax-Exempt Bonds are issued, you should notify your supervising professional because certain unintended tax consequences may arise in this case.  A chart showing the Optional Redemption periods for the Bonds and the applicable Premium for each Optional Redemption is part of the Bond form, the Indenture or Bond Resolution and the Offering Document and may appear as follows:

Optional Redemption PeriodPremium
December 1, 2033 through November 30, 2034102%
December 1, 2034 through November 30, 2035101%
December 1, 2035 and thereafter100%

In this example, the Issuer cannot redeem, or prepay, the Bonds prior to December 1, 2033 and, from December 1, 2033 to November 30, 2034, must pay a 2% Premium to redeem the Bonds.  In addition, the Issuer has the option to redeem the Bonds subject to Optional Redemption but is not obligated to do so.  The information about any Optional Redemption of the Bonds is determined at the time the Bonds are sold.


See Also

Redemption

The repayment of bonds prior to their maturity date.

Hudson Yards Rail Yards

Start with the Bond Basics

Hundreds of Terms and Concepts

Certificate of Participation (“COP”)

Financing that allows an investor to purchase a participation interest in a stream of payments generated by a lease, installment sale agreement or other governmental obligation.