Investors generally receive repayment of the principal amount of the bonds when the bonds mature. Maturity dates are typically between one and 30 years from issuance. However, in many cases, principal can be pre-paid by the issuer through various processes of redemption.
Sinking Fund Redemption
In some cases, particularly in the case of bonds maturing far into the future, a portion of the principal amount of the bonds may be subject to prepayment by the issuer based on a predetermined schedule of prepayments (called a "sinking fund schedule"). In other cases, prepayments may occur based on the availability of funds on deposit in a fund established for the purpose of prepaying bonds. In this case, the funds are usually accumulated over time and sinking fund redemptions occur either on a specified date in an amount equal to the accumulated funds or on the date the accumulated funds reach a specified amount.
A common feature of bonds is the optional call feature. An issuer may be prohibited from prepaying the bonds for a fixed period of time. After this "no call" period elapses, an issuer may redeem the bonds on a specific date at a specific price.
Many bond issues also provide for redemptions upon the occurrence of certain specified events that can occur prior to maturity at an unknown point in time. In most cases the issuer has the right to call the bonds at par value when the certain specified event occurs. The types of events and circumstances that can trigger such a redemption differ greatly from issue to issue and are described in the official statement and other issue documentation.
An issuer is required to redeem all or a portion of a bond issue in accordance with prepayment provisions of the bond indenture.
Make Whole Call Provision
A call provision that allows an issuer to pay off remaining bonds early. The issuer makes a lump sum payment based on the net present value of future coupon payments that will not be paid as a result of the bonds being redeemed.