WHAT IS 'Harmless Warrant'

A harmless warrant is a warrant issued by the bond issuer that requires the holder to surrender the bond in order to buy another bond with the same terms from the issuer. It is a way for a bond issuer to make sure it doesn't sell too much debt. A harmless warrant is a type of warrant, which is a security that gives the holder the right, but not the obligation, to trade a specific amount of an asset at a specified time.

A harmless warrant is also known as a wedding warrant.

BREAKING DOWN 'Harmless Warrant'

A harmless warrant is issued by an entity that issues bonds in order to control the amount of outstanding debt it issues. An investor who buys a bond with a harmless warrant, or wedding warrant, cannot purchase another bond from the same issuer with the same terms, including maturity, yield and principal amount, until the investor surrenders the first bond they purchased. In this way, an investor can't get too much leverage on the bond issuer and the issuer cannot get into a dangerous situation in which an investor calls multiple bonds that the issuer can't cover.

A harmless warrant does not prevent the holder from purchasing another bond with different terms from the issuer. The holder may purchase other bonds with different maturity terms, yield rate and principal amount. However, an investor generally wants to repeat an investment because the terms are favorable, so a harmless warrant forces an investor to decide which of the terms are the most crucial, unless they are willing to surrender the original bond to purchase a new one with the same terms.

Warrant vs Harmless Warrant

A warrant is a type of derivative security. It is a derivative because it gives the holder rights to act in some way with another security. A warrant gives the holder the right to buy or sell another security at a specific time, although the warrant holder does not have the obligation to exercise this warrant. The holder of the original security purchases the warrant to have the rights to do whatever the warrant delineates. A harmless warrant gives the holder the right to purchase another bond at the same terms as the bond to which the harmless warrant applies. However, the harmless warrant does not give the holder the right to own two bonds with the same terms at the same time. Instead it, requires the holder to surrender the first bond to be allowed to buy the second bond with the same terms.

  1. Warrant

    A derivative that gives the holder the right, but not the obligation, ...
  2. Call Warrant

    A call warrant is a financial instrument that gives the holder ...
  3. Warrant Premium

    The warrant premium represents the cost of purchasing a share ...
  4. Detachable Warrant

    A detachable warrant is a derivative that is attached to a security ...
  5. Currency Warrants

    A currency warrant is a financial instrument used to hedge currency ...
  6. Covered Warrant

    A covered warrant is a security that offers the right, but not ...
Related Articles
  1. Trading

    Warrants: A Risky But High-Return Investment Tool

    Discover the advantages and disadvantages of warrants, a largely unexploited investment vehicle.
  2. Investing

    Understanding Warrants and Call Options

    Understand the fundamentals of warrants and call options, and find out how these securities contracts are quite similar, but also have some notable differences.
  3. Investing

    Investing in Stock Rights and Warrants

    Learn why many companies choose to issue rights or warrants as an alternative means of generating capital and how their value is determined.
  4. Investing

    A Guide to High Yield Corporate Bonds

    The universe of corporate high yield bonds encompasses multiple different types and structures.
  5. Financial Advisor

    Don't Invest in Bonds Without Asking These 7 Questions

    There are a number of questions every beginner and seasoned investor should ask before investing in bonds. Here are seven of them.
  6. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  7. Investing

    Weatherford Floats New Shares, Warrants, and Notes

    Struggling energy industry services company Weatherford International (NYSE: WFT) is raising some funds the old-fashioned way -- by issuing a fresh batch of securities: The company will float ...
  8. Investing

    How To Evaluate Bond Performance

    Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk.
  9. Investing

    Corporate Bonds for Retirement Accounts

    Corporate bonds are usually the preferred choice in retirement accounts. Here are some of the benefits of corporate bonds, and strategies for a portfolio.
  10. Investing

    The Basics Of Municipal Bonds

    Investing in municipal bonds may offer a tax-free income stream, but such bonds are not without risks. Check out types of bonds and the risk factors of muni-bond.
  1. I own some stock warrants. How do I exercise them?

    A stock warrant gives the holder the right to buy shares at a certain price before expiration. Learn how to utilize these ... Read Answer >>
Trading Center