A bond whose terms of issue stipulate the issuer’s right to postpone the repayment date (contractual privilege of the issuer of lengthening the repayment schedule of the bond). This does not affect the interest payable on the bond. – However, some creditors offer a higher interest rate from the time the redemption period is extended in order to avoid a fall in the bond price. For many bondholders, an extension of the redemption period interferes with their own financial planning. They are therefore inclined to sell the bond. The resulting fall in prices, however, has an impact on confidence in the company. Suppliers, customers and banks will now behave accordingly toward the company, which ultimately affects the bottom line. An additional interest incentive for the bondholders is therefore likely to be worthwhile for the issuer making use of the extension clause.
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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