Definition
A make-whole call allows the issuer to redeem bonds early by paying bondholders the present value of future cash flows plus a premium (typically Treasury rate plus 15-50 bps). Unlike traditional calls at par, make-whole provisions are expensive for issuers, making early redemption rare and protecting bondholder returns.
Formula
Make-Whole Price = PV of Remaining Cash Flows at Treasury + Spread
Example
A 5% bond with 5 years left is called via make-whole at Treasury+0.25%. The company pays significant premium over par.
FAQ
What is Make-Whole Call?
A call provision that compensates bondholders for early redemption.
How do you calculate Make-Whole Call?
A common formula for Make-Whole Call is: Make-Whole Price = PV of Remaining Cash Flows at Treasury + Spread
Why is Make-Whole Call important?
Make-Whole Call helps investors evaluate fixed income and make more informed decisions.