Retiring a Bond Issue

D

A bond issue is a means of raising capital for a company or government by issuing debt securities to investors. These bonds typically have a set maturity date, at which point the principal amount is repaid to the bondholders. However, there are several ways in which a bond issue may be retired before its scheduled maturity date.

A. Calling the bonds if there is a call feature: Many bonds have a call feature, which allows the issuer to redeem the bonds before the maturity date. This is typically done by paying the bondholders a specified call price, which is usually at a premium to the face value of the bond. The call feature may be included in the bond indenture, which is the legal document that governs the terms of the bond issue. If the bond issuer decides to call the bonds, it must provide notice to the bondholders according to the terms of the indenture.

B. Converting the bonds (if convertible) into common stock: Some bonds are convertible, which means that the bondholders have the option to convert their bonds into a specified number of shares of common stock of the issuer. The conversion ratio and terms of conversion are typically set forth in the bond indenture. If the bondholders choose to convert their bonds into stock, the bonds are retired and the issuer issues new shares of common stock to the bondholders.

C. Making a single-sum payment at final maturity: If a bond issue is not called or converted before its scheduled maturity date, the issuer must make a final payment to the bondholders. This payment typically includes the full principal amount of the bond, as well as any accrued interest that has not yet been paid.

D. All of the above: Therefore, the correct answer is D, all of the above. A bond issue may be retired by calling the bonds if there is a call feature, converting the bonds (if convertible) into common stock, or making a single-sum payment at final maturity. The method of retirement will depend on the terms of the bond issue and the decisions of the issuer and bondholders.