A call provision on a bond allows the issuer to redeem the bond at will. Investors do not like call provisions and so require higher interest on callable bonds. Why do issuers continue to issue callable bonds anyway?

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A call provision on a bond allows the issuer to redeem the bond at will. Investors do not like call provisions and so require higher interest on callable bonds. Why do issuers continue to issue callable bonds anyway?



Answer: Firms like having the flexibility to adjust their capital structure by paying off debt they no longer need. They also need to pay off debt to remove restrictive covenants. Call provisions permit both these actions at the issuer's discretion.

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