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A call date is the earliest possible date that a bond issuer can redeem a callable bond, which is different from the maturity date. Certain conditions must be met before the issuer can exercise an early redemption, and investors should be aware of the provisions for a purchase date. The issuer may not necessarily exercise the call date unless there is a strong financial reason to do so.
A call date has to do with the redemption of a callable bond. Essentially, the call date is the earliest possible date that the bond issuer can redeem the bond. The call date is different from the maturity date of the callable notes, as the call date occurs sometime before the maturity date specified in the terms and conditions surrounding the issuance of the note.
One of the characteristics of the call date is that certain conditions must be present before the issuer of the bond can exercise an early redemption. First, call dates can be extended to bondholders when interest rates fall. When this happens, the bond issuer is best served by pooling the bonds, honoring them at the old interest rate, and immediately issuing new bonds at the new, lower interest rate. This helps the issuer of the bond since interest payments on the original bonds are only due up to the date of the call. In the long run, the bond issuer will end up paying less interest to bondholders.
A bondholder may also be interested in accepting a purchase date offered by the issuer of the bond. While meeting a purchase date means that the payout on the investment will be less, it also means that some interest income is earned, and the income can be immediately reinvested in another bond or other type of investment.
In general, the terms and conditions surrounding a bond will include information about the earliest possible purchase date that the issuer of the bond can exercise. For example, the terms may specify that on a twenty-year bond, the issuer reserves the right to issue a call date at the ten-year mark. Investors should always be aware of the provisions for a purchase date that are part of any bond issue.
Note that just because a bond issue comes with specifications regarding a call date, that does not necessarily mean that the issuer will exercise the call date at any time. Unless there is a strong financial reason to invoke a purchase date, the bond is likely to remain in force and earn interest income until the maturity date.
Smart Asset.
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