At a second meeting, Ruelas tells Maestre about a EUR22 million bond issue Cavado would like to retire. The issue is currently rated A-, and credit spreads for that rating are relatively high. Ruelas expects spreads to narrow in the future as the economy improves and as Cávado’s performance for the coming year is factored into markets. The bond is closely held by two investment funds, and Ruelas feels they would be willing to sell their bond exposure at a small premium over the market price. Ruelas also feels Cávado’s auditors would permit accounting defeasement if Cávado purchased a portfolio of high-quality government bonds whose cash flow characteristics closely matched the Cávado bonds or if it purchased a portfolio of corporate bonds with similar duration and convexity characteristics and higher yields. Maestre recommends a strategy for retiring the bond.
Answer: Bond tender is the correct answer - since the premium is small.
Assume the premium was not small then which option should we select?