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Glossary

Make-Whole Call

Category — Bond Option Types
A Make-Whole Call (MWC) is a type of a call option that secures the issuer’s right to the early redemption of a bond on any day of a predetermined period.

Unlike the American call option, MWC generally has no lock-up period, and its interval begins from the settlement date. In addition, the MWC strike price is not fixed and is defined as the highest of the following:

— 100% of the bond’s face value;

— sum of discounted payments on the bond (face value and all coupon payments).

The MWC discount rate is the yield of specific government bonds raised by a predetermined number of basis points.

The date of expiry of MWC often coincides with the start date of an American option (e.g. UnitedHealth Group, 3.875% 15aug2059, USD); MWC may also cover the entire maturity period of a bond and expire on its maturity date (e.g. UnitedHealth Group, 3.85% 15jun2028, USD).

All things equal, MWC reduces the value of the bond at a lower rate than the American call option as it is more favorable to the holder.
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