Catastrophe Call

DEFINITION of 'Catastrophe Call'

A call provision in municipal bonds that allows for the early redemption of the instrument if a catastrophic event occurs and severely damages the project financed by the issue. Possible catastrophes will be listed in the bond's indenture and are often callable at par.

BREAKING DOWN 'Catastrophe Call'

Catastrophe calls provide municipalities insurance against natural disasters. For example, let's say an earthquake destroyed a newly constructed bridge. Since the construction cost was financed by a municipal bond issue (with a catastrophe call option) and the bridge's destruction does not allow it to generate the revenue expected to repay the debt, the bonds may be called at par immediately.

RELATED TERMS
  1. Catastrophe Excess Reinsurance

    Insurance for catastrophe insurers. Because of the unpredictable ...
  2. Catastrophe Futures

    Catastrophe futures are futures contracts traded on the Chicago ...
  3. Catastrophe Loss Index - CLI

    An index used in the insurance industry to quantify the magnitude ...
  4. Catastrophe Insurance

    Insurance to protect businesses and residences against natural ...
  5. Catastrophe Swap

    A customizable financial instrument traded in the over-the-counter ...
  6. Workers' Compensation Catastrophe ...

    A type of loss reinsurance that is purchased by insurers of workers' ...
Related Articles
  1. Professionals

    Provisions for Redeeming Bonds

    CFA Level 1 - Provisions for Redeeming Bonds. Learn the various types of ways a callable bond may be redeemed. Shows when these options could be executed, and provides a sample call.
  2. Bonds & Fixed Income

    Bond Call Features: Don't Get Caught Off Guard

    Learn why early redemption occurs and how to avoid potential losses.
  3. Insurance

    Is Catastrophic Health Insurance Right for You?

    Catastrophic health plans protect you from high medical costs if you get seriously hurt or injured. But when is catastrophic the best option for you?
  4. Bonds & Fixed Income

    What Is A Municipal Bond?

    A municipal bond is a debt instrument used by a city, state, county or other local government authority to raise money for a project. Municipal bonds, often called munis, are considered a debt ...
  5. Bonds & Fixed Income

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  6. Bonds & Fixed Income

    5 Reasons to Invest in Municipal Bonds When the Fed Hikes Rates

    Discover five reasons why investing in municipal bonds after the Fed hikes interest rates, and not before, can be a great way to boost investment income.
  7. Insurance

    How Catastrophic Health Insurance Works

    Catastrophic health insurance is open to people under 30 and those who qualify by income under the Affordable Care Act. But how exactly does it work?
  8. Mutual Funds & ETFs

    Why Muni Bonds and Bond Funds are Perfect Together

    Municipal bonds and bond funds differ in several ways, which is partly why they complement each other well.
  9. Bonds & Fixed Income

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  10. Mutual Funds & ETFs

    How to Find the Best Bets in Muni Bonds

    Approach investing in municipal bonds the same as you would investing in stocks.
RELATED FAQS
  1. A corporate bond I own has just been called by the issuer. How can a company legally ...

    Bond issues can contain what is referred to as a call provision, which is a right afforded to the issuing company enabling ... Read Answer >>
  2. What is a triple tax-free municipal bond?

    At its core, a triple tax-free municipal bond is just like any corporate bond: it is a debt instrument, a loan given to a ... Read Answer >>
  3. What do cities do with the funds generated from municipal bonds?

    Learn more about municipal bonds, including the various types of bonds issued and the purposes of municipal bond funds, such ... Read Answer >>
  4. Why is a premium usually paid on a callable bond?

    Understand the nature and characteristics of callable bonds, and specifically why those factors lead issuers to offer a premium ... Read Answer >>
  5. How do the returns on municipal bonds compare to those of other bonds?

    Learn how tax-free municipal bonds may provide better returns than other types of bonds, and understand the risks of municipal ... Read Answer >>
  6. Why do companies issue callable bonds?

    Learn how callable bonds work, how they include an embedded call option, and understand the additional risks that callable ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center