Series 53: Refunding Bonds

Refunding Bonds

As stated in Chapter 4, bond refunding is the replacement of existing bonds with new “refunding” bonds. The issuer of refunding bonds often seeks to lower its interest payments by paying off its previously issued (refunded) bonds with newly issued bonds that pay interest at a lower rate. Another reason to refund existing bonds may be to release the issuer from legal covenants or restrictions in the original indenture.

An important distinction between the refunding of a bond and the refinancing of a mortgage is that the refunded bond is not always immed