FEATURES OF CORPORATE BONDS

Here are three common features of corporate bonds. All of these are established at the time of issue.
Callability is the feature of a bond whereby the corporation that issued it can redeem the bond before it matures.

Corporations may call their bonds when interest rates drop below their current bond rates. They may then replace high-yielding bonds with lower-yielding bonds. Call provisions must be made clear before a bond is issued.
These provisions include the call price, which is the price at which the bond will be sold back to bond issuers.

The call price is usually above par. The company must also include dates on which it can legally begin to order its bonds redeemed.
A put provision is the privilege whereby the bondholder may redeem a bond at its face value before it matures.

Investors may want to do this when interest rates are rising and they can take advantage of higher rates elsewhere. They may not "put" their bonds whenever they choose, however. The issuer assigns dates for this provision, after which the bondholders may then redeem the bonds.
Convertibility is the option of converting a bond into stock. Bonds with this feature are called convertible bonds. They give the investor the option to convert the bond into the issuing company's common stock. Conversion must occur at specified times, at specified prices and under specified conditions, all set down in writing at the time of issue. Bonds can be callable and convertible in one. With this provision, the company may have the option to pay investors in stock.

Course Topics:
Bond Basics | Types of Bonds | Bond Features Buying, Selling and Trading Bonds