A full call or MWC is a bond call that ensures equitable compensation for investors if the bond is called early, with the issuer meeting certain criteria and providing a settlement payment. This structure increases the chances of recovering the investment amount and making a profit, while placing a greater financial obligation on the issuer. Investors should read the terms and conditions of bonds to understand potential returns and early call triggers.
A full call or MWC is a type of bond call that places certain provisions on the issuer that must be met if the bond issue is called early. This structure helps ensure that even if the bond is called early, the investor still receives equitable compensation or is paid in as part of the early settlement of the bond. Generally, the terms of a full call will also require the issuer of the bond to provide a balloon payment to the investor.
With a complete call, the issuer must meet all the criteria set forth in the surety contract to initiate the call process. When the bond is called for, the issuer must provide the investor with a payment that is considered to be at least its face value. Additionally, the amount of the settlement payment can be based on a comparison to a similar type of bond issue or even some type of Treasury guarantee, using the current yield on that issue as the guidelines for settling the named bond.
The benefit of doing a full investor call is that you increase the chances of not only recovering your original investment amount but also of making some kind of profit from the company. At the same time, the structure of a complete call places a greater financial obligation on the part of the issuer. This aspect of the link structure will often help to minimize the chances of the link being called early, unless there are compelling reasons to do so. From this perspective, provisioning in a bond issue tends to increase the chances that the bond will remain in place until maturity and provide the investor with the originally anticipated returns.
While the use of a full call provision has become increasingly common since the late 20th century, not all bonds are structured to include this type of protection. For this reason, investors should read all the terms and conditions associated with the bonds they are considering buying. The goal is to not only understand the potential return on investment, but also what events may trigger an early call and what type of obligation the issuer will have to meet if the bond is called early. When a true call-out provision is included in the terms of the bonds, the investor has a much better chance of earning a return that is at least acceptable, even if the bond does not remain in place to maturity.
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