Make whole clause: Difference between revisions
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A strong form of protection for lenders/investors in securities, designed to mitigate the adverse effects of call risk for investors. | A strong form of protection for lenders/investors in securities, designed to mitigate the adverse effects of call risk for investors. | ||
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The consequence of a make whole clause for the investor is that they can re-invest the redemption monies in US government stock, thus preserving their originally expected cash inflows at lower risk. | The consequence of a make whole clause for the investor is that they can re-invest the redemption monies in US government stock, thus preserving their originally expected cash inflows at lower risk. | ||
Make whole clauses are similar in their effect to Spens clauses. | Make whole clauses are similar in their effect to Spens clauses. | ||
Revision as of 15:48, 28 August 2017
US - securities
A strong form of protection for lenders/investors in securities, designed to mitigate the adverse effects of call risk for investors.
Under a make whole clause the borrower/issuer has to value the cash flows beyond the date of the early call/redemption at the US government bond yield.
This potentially makes it prohibitively expensive for the issuer to take an early redemption.
The consequence of a make whole clause for the investor is that they can re-invest the redemption monies in US government stock, thus preserving their originally expected cash inflows at lower risk.
Make whole clauses are similar in their effect to Spens clauses.
