Bonds with Make-Whole Calls

• Background
• Make-Whole Call Calculation Agent
• Make-Whole Call Adviser / Independent Expert

Background

• A make whole call gives a bond issuer the ability to call a bond at any time, discounting future cash flows at the prevailing government bond yield plus a spread (typically 10-50bps)
• While US dollar and high yield bonds have included make-whole calls for many years, their use in European investment grade bonds has grown more recently,  rising to >50% of all issuance
• Significant variance in documentation between transactions, including a number of common problems
• Structural considerations when including a make-whole call
  • How likely is it to be used?
  • How easy will it be to operate the make-whole provisions when they are needed?
  • Who is responsible for determining the make-whole price?
  • What is “best practice” when it comes to documentation and execution?
  • What to do when the make-whole documentation contains flaws?

Make-Whole Call Calculation Agent

• ConvEx is a highly experienced make-whole call calculation agent, named in the documentation on nearly 100 Eurobonds to date
• When ConvEx is named as Calculation Agent in the programme or bond prospectus, issuers benefit from our experience in ensuring their documentation avoids known problems, and we are also responsible for performing the calculations when needed
• We can provide this service at a much lower cost than appointing an Independent Expert or adviser at the time of exercise

Make-Whole Call Adviser / Independent Expert

• ConvEx is highly experienced in performing make-whole call calculations for issuers, having advised issuers across multiple jurisdictions
• We support issuers in exercising these options, by interpreting complex documentation, selecting benchmark bonds, assisting in sourcing quotes, performing the calculations, and communicating with bondholders and other involved parties
• Where needed we can provide written opinions for the issuer’s reliance
• We are familiar with the most common problems in the documentation, and can assist issuers in avoiding the associated pitfalls