Regular versus special redemption prices, Financial Management

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The call prices for various issues mentioned above are known as regular redemption prices. Point to be noted is that the regular redemption prices are above par until the first par call date. There are also special redemption prices for bonds redeemed through the sinking fund and through other provisions, and the proceeds from the confiscation of property through the right of eminent domain or the forced sale or transfer of assets due to deregulation. The special redemption price is usually par value. Thus, there is an advantage to the issuer of being able to redeem an issue prior to the first par call date at the special redemption price (usually par) rather than at the regular redemption price.

A concern of an investor is that an issuer may use all means possible to maneuver a call so that the special redemption price applies. This is referred to as the par call problem. There have been ample examples, and subsequent litigations, where corporations have used the special redemption price and bondholders have challenged them.


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