Module III· DCM — High Yield & HybridIntermediate
Question
What is a call schedule in a high-yield bond, and why is it critical?
Answer
Mechanics
The call schedule defines when the issuer can redeem the bond before maturity and at what price.
Typical 7-year HY example
- Years 1-3: hard call protection; issuer cannot redeem except through make-whole or special clauses.
- Year 3: first call, often around 103-105 depending on coupon.
- Year 4: lower call premium.
- Year 5+: call price steps down toward par.
Equity claw
The issuer may redeem a portion, often 35-40%, using equity proceeds during the non-call period at a premium.
Why critical
The call schedule determines investor downside / upside, refinancing flexibility, and yield-to-worst. If rates fall or credit improves, the issuer will call when economical, limiting investor upside.
Pitch tip
HY bonds trade on call economics. Always analyze yield-to-worst, not just maturity yield.