Soft call protection
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).
