Omega corp has outstanding a 100 million 9% coupon bond issue that is refund protected until July 1,2010 . This issue A. is noncallable B.is call protected until July 1,2010 C.currently may be redeemed with funds from general operations D. currently may be redeemed but only if refunded by an issue with a lower cost …
I believe it is answer C, and only if those funds have a higher cost associated with them than the cost of the standing bond.
docmash80, the correct answer is C. Whether a bond is nonrefundable is a feature that would be specified in its indenture, which if present, would explicitly forbid the issuer from retiring the bond by repaying it from the proceeds of a subsequent debt issue (i.e. refinancing it). However, this would not preclude the issuer from retiring the bond with funds generated by its operations. The nonrefundable feature offers the lender some protection against reinvestment risk if prevailing interest rates decline. edit: typos.
Ans is ‘C’, and here are some, so called ‘General Operations’ in this question, listed out by JoeyD, which could be used to ‘early retire’ a debt and not for the sole cruel purpose of refinancing the debt at lower interest rates (i.e nonrefundable) http://www.analystforum.com/phorums/read.php?11,610662,611477#msg-611477 - Dinesh S