Refunding of Bonds
The process of retiring outstanding bonds and issuing new ones is called refunding. Bond refunding may or may not involve an early redemption. Refunding is similar to a homeowner refinancing her mortgage. When interest rates fall, the homeowner refinances to replace her current mortgage with a new mortgage at a lower rate. Similarly, when interest rates fall, a company may issue new bonds, called refunding bonds, at a lower rate. The proceeds of the refunding bonds have the sole purpose of being used to retire an existing issue, the refunded bonds. When an issuer uses the proceeds from the refunding bonds to retire the old debt right away (within 90 days), it is called a current refunding.
Refunding does not mean that the old debt must immediately be paid off by the new debt, however. A refunding in which the old issue