Hi,
There is something I am confused about with Ratchet bonds. I understand the process.
If coupon rates fall below the previous level the issuer benefits by now having to pay pay lower coupons to the investor.
But the investor also has an option here to put the bond back at Par. Firstly, can someone explain which situations an invesor would do this? Surely no investor is willing to accept lower coupons and therefore would always excercise this option when it falls below a rate? Or would they perhaps think it through more as if they put it back then they will not be able to get a better coupon elsewhere as the new coupon low is say the market rate.
Essentially then, what reason is there to have this double option in place and I do not see how it benefits the investor in any way, unless i am missing something obvious.
Thanks