Soft call protection: Difference between revisions
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A weak form of protection for lenders/investors in securities, designed to mitigate the adverse effects of call risk for investors. | A weak form of protection for lenders/investors in securities, designed to mitigate the adverse effects of call risk for investors. | ||
Soft call protection requires the payment of a premium to the investor, on any early redemption of a callable bond by the borrower/issuer. | Soft call protection requires the payment of a premium to the investor, on any early redemption of a callable bond by the borrower/issuer. | ||
The premium is usually small - for example 0.5% or 1% of the principal per annum - over the remaining life at early redemption. | The premium is usually small - for example 0.5% or 1% of the principal per annum - over the remaining life at early redemption. | ||
At early redemption the premium becomes payable, together with principal and outstanding interest at the call/redemption date. | At early redemption the premium becomes payable, together with principal and outstanding interest at the call/redemption date. | ||
A 1% premium is often referred to as ''101 call protection''. | A 1% premium is often referred to as ''101 call protection''. | ||
It sometimes applies only for an early part - for example just the first year - of the life of a security (the security becoming freely callable after that initial period of soft call protection). | It sometimes applies only for an early part - for example just the first year - of the life of a security (the security becoming freely callable after that initial period of soft call protection). | ||
== See also == | == See also == | ||
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* [[Hard call protection]] | * [[Hard call protection]] | ||
* [[Soft]] | * [[Soft]] | ||
[[Category:Manage_risks]] | |||
Latest revision as of 16:41, 24 March 2020
A weak form of protection for lenders/investors in securities, designed to mitigate the adverse effects of call risk for investors.
Soft call protection requires the payment of a premium to the investor, on any early redemption of a callable bond by the borrower/issuer.
The premium is usually small - for example 0.5% or 1% of the principal per annum - over the remaining life at early redemption.
At early redemption the premium becomes payable, together with principal and outstanding interest at the call/redemption date.
A 1% premium is often referred to as 101 call protection.
It sometimes applies only for an early part - for example just the first year - of the life of a security (the security becoming freely callable after that initial period of soft call protection).
