Series 79: A1.6.7. Retirement Of Bonds

A1.6.7. Retirement of Bonds

A bond has been retired when the issuer owes nothing more to the bondholder. The most common way for a bond to be retired is by reaching maturity. However, sometimes issuers wish to retire bonds early. Different methods are available for accomplishing this, depending on the features (such as a call feature) written into the bond indenture when the bonds were issued, the financial condition of the issuer, and interest rates.

When a company issues a bond, it raises capital in the short-term but creates an obligation that must be repaid in the long-term. A company may retire its outstanding debt serially by periodically redeeming bonds from different series within the same issue, or it may redeem a bond issue in one fell swoop. Especially in the latter case, if the company does not plan ahead, it could face cash flow problems when the time comes to repay the principal a