Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-15T14:27:22.405Z Has data issue: false hasContentIssue false
  • English
  • Français

Refunding Noncallable Debt

Published online by Cambridge University Press:  06 April 2009

Douglas R. Emery  and
Wilbur G. Lewellen
Get access Rights & Permissions [Opens in a new window]

Extract

Since Bowlin's [4] original article on the topic was published, a considerable literature on corporate bond refunding has developed. Most of that literature has concentrated on the question of how to measure the benefit to a company's shareholders of exercising the call provision associated with an outstanding debt issue (see [3], [12], [21], [26], [27], [29], and [31]). Among the related concerns have been the matters of whether there are valuation advantages to the deliberate issuance of discount—including “zero coupon”—bonds (see [9], [22], and [28]), and whether there can be profitable opportunities for refunding prior to maturity debt instruments that were issued at par but later trade at a discount (see [1], [2], [13], [15], [17], [18], and [23]).

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 19 , Issue 1 , March 1984 , pp. 73 - 82
Copyright
Copyright © School of Business Administration, University of Washington 1984

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Ang, J. “The Two Faces of Bond Refunding.” Journal of Finance, Vol. 30 (06 1975), pp. 869–874.CrossRefGoogle Scholar
[2]Ang, J.. “The Two Faces of Bond Refunding: Reply.” Journal of Finance, Vol. 33 (03 1978), pp. 354–356.CrossRefGoogle Scholar
[3]Bierman, H. “The Bond Refunding Decision.” Financial Management, Vol. 1 (Summer 1972), pp. 27–29.CrossRefGoogle Scholar
[4]Bowlin, O. “The Refunding Decision: Another Special Case in Capital Budgeting.” Journal of Finance, Vol. 21 (03 1966), pp. 55–68.Google Scholar
[5]Braswell, R., and Sumners, D.. “The Effect of Taxes on the Appropriate Coupon Rate Strategy for Issuing Corporate Bonds.” National Tax Journal, Vol. 35 (12 1982), pp. 437–448.CrossRefGoogle Scholar
[6]Braswell, R.; Sumners, D.; and Reinhardt, W.. “The Effect of the Tax Act of 1982 on the Appropriate Coupon Rate Strategy for Issuing Corporate Bonds.” National Tax Journal, Vol. 36 (forthcoming 1983).CrossRefGoogle Scholar
[7]Brennan, M., and Schwartz, E.. “Convertible Bonds: Valuation and Optimal Strategies for Call and Conversion.” Journal of Finance, Vol. 32 (12 1977), pp. 1699–1715.CrossRefGoogle Scholar
[8]Brigham, E.Financial Management: Theory and Practice. 3rd Edition, Hinsdale, IL: Dryden Press (1982), pp. 484–486.Google Scholar
[9]Caks, J. “The Coupon Effect on Yield to Maturity.” Journal of Finance, Vol. 32 (03 1977), pp. 103–115.CrossRefGoogle Scholar
[10]Caks, J. “Taxation and Bond Market Equilibrium in a World of Uncertain Future Interest Rates.” Journal of Financial and Quantitative Analysis, Vol. 14 (03 1979), pp. 11–27.Google Scholar
[11]Ehrbar, A. “Upheaval in Investment Banking.” Fortune, Vol. 107 (08 23, 1982), pp. 90–95.Google Scholar
[12]Emery, D. “Overlapping Interest in Bond Refunding: A Reconsideration.” Financial Management, Vol. 7 (Summer 1978), pp. 19–20.CrossRefGoogle Scholar
[13]Finnerty, J. “Refunding Discounted Debt: A Clarifying Analysis.” Working Paper, Lazard Freres and Company (12 1982).Google Scholar
[14]Franks, J., and Hodges, S.. “Valuation of Financial Lease Contracts: A Note.” Journal of Finance, Vol. 33 (05 1978), pp. 657–669.CrossRefGoogle Scholar
[15]Harris, R. “The Refunding of Discounted Debt: An Adjusted Present Value Analysis.” Financial Management, Vol. 9 (Winter 1980), pp. 7–12.CrossRefGoogle Scholar
[16]Ingersoll, J. “An Examination of Corporate Call Policies on Convertible Securities.” Journal of Finance, Vol. 32 (05 1977), pp. 463–478.CrossRefGoogle Scholar
[17]Johnson, R., and Klein, R.. “Corporate Motives in Repurchases of Discounted Bonds.” Financial Management, Vol. 3 (Autumn 1974), pp. 44–49.CrossRefGoogle Scholar
[18]Kalotay, A. “On the Advanced Refunding of Discounted Debt.” Financial Management, Vol. 7 (Summer 1978), pp. 14–18.CrossRefGoogle Scholar
[19]Kalotay, A. “Innovations in Corporate Finance: Deep Discount Private Placements.” Financial Management, Vol. 11 (Spring 1982), pp. 55–57.CrossRefGoogle Scholar
[20]Laber, G. “Repurchases of Bonds Through Tender Offers: Implications for Shareholder Wealth.” Financial Management, Vol. 7 (Summer 1978), pp. 7–13.CrossRefGoogle Scholar
[21]Lewellen, W., and Emery, D.. “On the Matter of Parity among Financial Obligations.” Journal of Finance, Vol. 35 (03 1980), pp. 97–111.Google Scholar
[22]Livingston, M. “A Note on the Issuance of Long-Term Pure Discount Bonds.” Journal of Finance, Vol. 34 (03 1979), pp. 241–246.Google Scholar
[23]Mayor, T., and McCoin, K.. “Bond Refunding: One or Two Faces?” Journal of Finance, Vol. 33 (03 1978), pp. 349–353.CrossRefGoogle Scholar
[24]Modigliani, F., and Miller, M.. “The Cost of Capital, Corporation Finance, and the Theory of Investment.” American Economic Review, Vol. 48 (06 1958), pp. 261–297.Google Scholar
[25]“New York State E&G Plans Tender Offer for Two High-Rate Issues.” Wall Street Journal, Vol. 52 (12 2, 1982), p. 40.Google Scholar
[26]Ofer, A., and Taggart, R.. “Bond Refunding: A Clarifying Analysis.” Journal of Finance, Vol. 32 (03 1977), pp. 21–30.CrossRefGoogle Scholar
[27]Pye, G. “The Value of the Call Option on a Bond.” Journal of Political Economy, Vol. 74 (04 1966), pp. 200–205.CrossRefGoogle Scholar
[28]Racette, G., and Lewellen, W.. “Corporate Debt Coupon Rate Strategies.” National Tax Journal, Vol. 24 (06 1976), pp. 165–177.CrossRefGoogle Scholar
[29]Riener, K. “Financial Structure Effects of Bond Refunding.” Financial Management, Vol. 9 (Summer 1980), pp. 18–23.CrossRefGoogle Scholar
[30]U.S. Government, Tax Equity and Fiscal Responsibility Act of 1982, Section 231, Washington: U.S. Government Printing Office (1982).Google Scholar
[31]Yawitz, J., and Anderson, J.. “The Effect of Bond Refunding on Shareholder Wealth.” Journal of Finance, Vol. 32 (12 1977), pp. 1738–1746.CrossRefGoogle Scholar
[32]Yawitz, J., and Maloney, K.. “Evaluating the Decision to Issue Original Issue Discount Bonds: Term Structure and Tax Effects.” Working Paper 82–3, Institute of Banking and Financial Markets, Washington University (1982).Google Scholar