What is a Detachable Call? A Comprehensive Legal Overview
Definition & Meaning
A detachable call refers to the right to repurchase a bond that has been sold separately from the bond itself. Typically, when a bond reaches its maturity date, the issuer has the option to pay off the bond after a specified period. Investors can acquire the right to call a bond either on a bond they own to prevent it from being called or on a bond owned by another party, allowing them the opportunity to buy a favorable bond at its face value.
Legal Use & context
This term is primarily used in the context of bond markets and securities law. It is relevant for investors, financial analysts, and legal professionals involved in transactions related to bonds. Understanding detachable calls can help investors navigate their rights and options when dealing with bonds, especially in situations where they may want to retain ownership or repurchase a bond at a favorable price. Users can manage related documents using templates from US Legal Forms, which provide guidance on bond transactions.
Real-world examples
Here are a couple of examples of abatement:
(Hypothetical example) An investor purchases a detachable call option on a corporate bond that they do not currently own. If the bond's market value increases, the investor can exercise their right to buy the bond at its face value, potentially profiting from the difference.
(Hypothetical example) A bondholder has a detachable call on a municipal bond. If the issuer decides to call the bond, the bondholder can use their right to repurchase it before the call date, ensuring they do not lose their investment prematurely.