Bond Call Provisions

A callable bond is typically only callable on the anniversary date of the bond or coupon date. However, this is not a requirement as the bond indenture is an individual contract specific to that particular bond issue. A common reason bonds are issued is to finance the acquisition of another company. These bonds are generally callable if the deal falls through and the call price is often set at 101 percent of par. Bondholders can be hurt by this fixed price call provision as bond prices can rise in the intervening period between bond issue and the deal being terminated. For example, when Sysco’s bid to buy US Foods  feel through last year, bondholders lost $309 million as the bonds were called at 101, well below current market price, which had reached as high as 113.3. Now, major bondholders are pushing to change the call value of bonds issued to fund acquisitions to a make-whole call premium, which commonly used for bonds issued for purposes other than acquisitions.