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Hard Call Protection

What is 'Hard Call Protection'

The period in the life of a callable bond during which the issuing company is not permitted to redeem the bond. Hard call bonds have this feature as a sweetener for investors, because even if interest rates drop, which would normally cause a bond to be called and reissued at the lower interest rate, hard call protection guarantees investors will receive the stated return for a fixed number of years, before the bond can be called. This protection typically lasts for the first three to five years of the bond's life.

Also called "absolute call protection."

Explaining 'Hard Call Protection'

After the hard call protection period expires, the bond may continue to be partially protected by soft call protection. This feature requires certain conditions to exist before the bond can be called. For example, in the case of convertible callable bonds, soft call protection would prevent the issuer from calling the bond until the price of the underlying stock rose to a certain percentage above the conversion price.

Callable bonds pay a higher return because of the risk that the issuer will redeem them before maturity. Retail notes are an example of a type of bond that commonly includes call protection.


Further Reading


Convertible bond design and capital investment: The role of call provisions
onlinelibrary.wiley.com [PDF]
… of Economics and Business Administration and the Helsinki School of Economics.Search for … For example, in Mayers (1998), firms finance their planned multistage investment programs … of hard protection followed by soft protection are classified as having hard call protection …

An empirical comparison of published replication research in accounting, economics, finance, management, and marketingAn empirical comparison of published replication research in accounting, economics, finance, management, and marketing
www.sciencedirect.com [PDF]
… of Economics and Business Administration and the Helsinki School of Economics.Search for … For example, in Mayers (1998), firms finance their planned multistage investment programs … of hard protection followed by soft protection are classified as having hard call protection …

Information: Hard and softInformation: Hard and soft
academic.oup.com [PDF]
… of Economics and Business Administration and the Helsinki School of Economics.Search for … For example, in Mayers (1998), firms finance their planned multistage investment programs … of hard protection followed by soft protection are classified as having hard call protection …

Financial pressure and the behaviour of public enterprises under soft and hard budget constraints: evidence from Italian panel dataFinancial pressure and the behaviour of public enterprises under soft and hard budget constraints: evidence from Italian panel data
www.sciencedirect.com [PDF]
… of Economics and Business Administration and the Helsinki School of Economics.Search for … For example, in Mayers (1998), firms finance their planned multistage investment programs … of hard protection followed by soft protection are classified as having hard call protection …

Protecting health in hard timesProtecting health in hard times
www.bmj.com [PDF]
… of Economics and Business Administration and the Helsinki School of Economics.Search for … For example, in Mayers (1998), firms finance their planned multistage investment programs … of hard protection followed by soft protection are classified as having hard call protection …

Small businesses and international entrepreneurship in the economic hard time: A global strategic perspectiveSmall businesses and international entrepreneurship in the economic hard time: A global strategic perspective
search.proquest.com [PDF]
… of Economics and Business Administration and the Helsinki School of Economics.Search for … For example, in Mayers (1998), firms finance their planned multistage investment programs … of hard protection followed by soft protection are classified as having hard call protection …



Q&A About Hard Call Protection


What are some examples of bonds that include hard call protection?

Retail notes are an example of a type of bond that commonly includes hard call protection.

What is hard call protection?

The period in the life of a callable bond during which the issuing company is not permitted to redeem the bond.

How long does hard call protection last?

Hard call protection lasts for three to five years.

Is there another reason why some companies issue bonds with only partial protections against early redemption when interest rates fall below their conversion price (if applicable)?

Yes, because these companies also want investors who will receive higher returns on their investments than those offered by other types of securities such as money market funds and CDs while still allowing them to redeem their debt if necessary at any time

Are all bonds with soft or absolute calls always partially protected by this feature?

No, not all bonds with soft or absolute calls are always partially protected by this feature.

Why do some companies issue bonds with only partial protections against early redemption when interest rates fall below their conversion price (if applicable)?

Because these companies want investors who will receive higher returns on their investments than those offered by other types of securities such as money market funds and CDs while still allowing them to redeem their debt if necessary at any time without penalty.

What kind of conditions must exist before a bond can be called after it has expired from its initial period of hard and/or soft or absolute call protection?

For example, in the case of convertible bonds, there must be certain conditions that exist before they can be called.

After the hard call protection period expires, what may happen to a bond with soft or absolute call protection?

The bond may continue to be partially protected by soft or absolute call protection.

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