I’ve seen in a few Citi presentations they use the abbreviation “NC/L” in terms of a debt financing structure. An example is for a 10 year bond the structure is “10 NC/L”. Does anybody know what NC/L stands for?
Non-Callable
NC/L = noncallable for life. There are plenty of NC/X (noncallable for X years) bonds out there too - so you might see NC/5 or NC/3 sometimes.
Thanks, those were kind of what I assumed, but in some cases it still doesn’t make sense to me. For example, on 3/3/09 PXP solde Senior Notes due 2016. The Tenor listed by the bank says 7NC4. However, the prospectus says: "We may, at our option, redeem all or part of the notes at a make-whole price at any time prior to March 1, 2013. On or after such date, we may redeem notes at fixed redemption prices, plus accrued and unpaid interest, if any, to the date of redemption, as described under “Description of notes—Optional redemption.” What am I missing here that it says NC4, however it looks like they can be called prior to 2013? Similarly, another company whose bonds the bank says are 5NCL has this statement in the prospectus: "may redeem all or part of the Notes at any time at its option at a redemption price equal to the greater of (1) the principal amount of the Notes being redeemed plus accrued interest to the redemption date or (2) a “make-whole” amount based on the yield of a comparable U.S. Treasury security plus 0.50%. In addition, before March 15, 2012, Anixter may redeem up to 35% of the aggregate principal amount of outstanding Notes with the net cash proceeds from public sales of Anixter International common stock at a redemption price equal to 110% of their principal amount, plus accrued and unpaid interest, if any, to the redemption date. See “Supplemental Description of the Notes — Optional Redemption.” Seems they are callable…I must be missing something. Any thoughts?
A make-whole call is not a call that will ever be exercised for economic reasons, so bonds with only a make-whole call will typically be described as an treated like a noncallable bond. Make-whole calls are typically done at levels that are so punishing for the company (and consequently, so sweet for the investor) that they’re only ever exercised in some crazy case where the company absolutely has to eliminate the issue - you see a lot of make-whole calls at treasuries plus 25 or 50 (the example you cite is a T+50), when the bond is trading at treasuries plus 500 or something like that. You’d be thrilled to have a bond called there, for sure. I have never actually seen a company exercise a make-whole call, my guess is it’s only in there because the lawyers think that there should be some exit option in case of really extreme circumstances. The market generally ignores those kinds of calls, and I think you can safely do that too.