Refunding

DEFINITION of 'Refunding'

The process of retiring or redeeming an outstanding bond issue at maturity by using the proceeds from a new debt issue. The new issue is almost always issued at a lower rate of interest than the refunded issue, ensuring significant reduction in interest expense for the issuer.

BREAKING DOWN 'Refunding'

In order to retain the attraction of its debt issues to bond buyers, the issuer will generally ensure that the new issue has at least the same - if not a higher - degree of credit protection as the refunded bonds. Refunding is likely to be more common in a low interest-rate environment, as issuers with significant debt loads have an incentive to replace their maturing higher-cost bonds with cheaper debt.


For example, an issuer that refunds a $100 million bond issue with a 10% coupon at maturity, and replaces it with a new $100 million issue with a 6% coupon, will have savings of $4 million in interest expense per annum.

RELATED TERMS
  1. Coupon

    The annual interest rate paid on a bond, expressed as a percentage ...
  2. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  3. Bond

    A debt investment in which an investor loans money to an entity ...
  4. Refinance

    1. When a business or person revises a payment schedule for repaying ...
  5. Refunded Bond

    Bonds that have their principle cash amount already held aside ...
  6. Corporate Refinancing

    The process through which a company reorganizes its debt obligations ...
Related Articles
  1. Bonds & Fixed Income

    Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  2. Bonds & Fixed Income

    How Bond Market Pricing Works

    Learn the basic rules that govern how bond prices are determined.
  3. Bonds & Fixed Income

    5 Basic Things To Know About Bonds

    Learn these basic terms to breakdown this seemingly complex investment area.
  4. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  5. Bonds & Fixed Income

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  6. Investing

    How Rising Interest Rates Affect Junk Bonds

    We examine the impact of rising interest rates on higher-yielding bonds.
  7. Mutual Funds & ETFs

    The 4 Best Fidelity Funds for Income Seekers in 2016

    Discover the four best fixed-income mutual funds administered and managed by Fidelity Investments suitable for income-seeking investors.
  8. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  9. Mutual Funds & ETFs

    The 4 Best Vanguard Funds for Income Seekers in 2016

    Discover four mutual funds administered and managed by the Vanguard Group that would be suitable for income-seeking investors for 2016.
  10. Mutual Funds & ETFs

    5 Vanguard Fixed Income Fund Outperformers

    Discover analyses of three Vanguard fixed-income funds that have historically outperformed their benchmark indexes, and learn about their characteristics.
RELATED FAQS
  1. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  2. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
  3. Have hedge funds eroded market opportunities?

    Hedge funds have not eroded market opportunities for longer-term investors. Many investors incorrectly assume they cannot ... Read Full Answer >>
  4. Are high yield bonds a good investment?

    Bonds are rated according to their risk of default by independent credit rating agencies such as Moody's, Standard & ... Read Full Answer >>
  5. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  6. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
Hot Definitions
  1. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  2. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  3. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  4. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
  5. Godfather Offer

    An irrefutable takeover offer made to a target company by an acquiring company. Typically, the acquisition price's premium ...
Trading Center