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.

RELATED TERMS
  1. Call Warrant

    A call warrant is a financial instrument that gives the holder ...
  2. Put Warrant

    A put warrant is a type of security that gives the holder the ...
  3. Detachable Warrant

    A detachable warrant is a derivative that is attached to a security ...
  4. Piggyback Warrants

    Additional warrants that are acquired following the exercise ...
  5. Currency Warrants

    A currency warrant is a financial instrument used to hedge currency ...
  6. Hold Harmless Clause

    A hold harmless clause states that an individual or organization ...
Related Articles
  1. Trading

    A User's Guide to Warrants

    A warrant is similar to option, except it's issued by a company. Learn all about these warrants and how to trade and value them.
  2. Investing

    Bank Warrants Your Atttention

    Bank warrants are a lucrative way to make a bet that U.S. financials will once again be respected by the investing public.
  3. 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.
  4. Investing

    A Guide to High Yield Corporate Bonds

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

    Why Bond Prices Fall When Interest Rates Rise

    Never invest in something you don’t understand. Bonds are no exception.
  6. Financial Advisor

    7 Questions to Consider Before Investing in Bonds

    There is a significant number of questions every investor, private or institutional, should consider before investing in bonds.
  7. 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.
  8. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  9. 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.
RELATED FAQS
  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 >>
  2. How are stock warrants different from stock options?

    Stock option and stock warrant may have similar function. However, company uses these two financial instruments for different ... Read Answer >>
  3. What does it mean when a bond has a put option?

    A put option on a bond is a provision that allows the holder of the bond the right to force the issuer to pay back the principal ... Read Answer >>
Trading Center