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Soft Call Protection

Category — Bond Option Types
The call protection of bonds is used to reduce the risks to investors in the event of early redemption of debt. As a rule there is a Soft Call Protection and a Hard Call Protection.

The Soft Call Protection requires a bond issuer to pay a premium to par should the bond be called earlier. For example, in order to call bonds DistIT, FRN 14may2022, SEK before maturity, the issuer shall pay 100.5% of par under the offer dated May 15, 2021. In this case, the Soft Call Protection premium will amount to additional 0.5%.

Specific Features:

- A Soft Call Protection usually becomes effective after the Hard Call Protection has lapsed.
- A Soft Call Protection provision increases a callable bond’s attractiveness for investors.
- A typical Soft Call Protection may require a premium of 50 basis points per year for early redemption.
- Non-convertible bonds may usually be called with a premium, which will gradually decrease as the bonds near the maturity date.
Terms from the same category