The vast majority of corporate bonds issued by less than investment grade issuers, with a maturity of seven to twelve years, are callable at a premium above par prior to maturity. Generally, a less than investment grade bond will be non-callable for five years and then callable by the company, at a premium of one half the coupon, beginning in year six. Bonds issued with high coupons, where the credit quality of the issuer has improved, have a very high probability of being called by the issuer at the first call price. In addition, companies are generally buyers of their own bonds in the open market at or below the first call price thereby providing price support to the issue and reducing mark to market risk.
Harch Capital has managed portfolios trading yield-to-call for investors and currently invests in securities trading yield-to-call.
YTC Bond Examples
|Issue||Rating||Size||Next Call||Equity Market Cap.|
|Jarden Corp. 8% Due 2016||Ba3/BB-||$300M||5/1/2013 at 104||$3.67 Billion (NYSE: JAH)|
7.125% Due 2018
|Ba2/BB+||$600M||5/15/2013 at 103.563||$4.65 Billion (NYSE: NFX)|
7.5% Due 2017
|Ba3/BB||$250M||10/1/2012 at 103.75||$9.10 Billions (NYSE: RRC)|