Weighted Average Life (WAL)

For bullet bonds that pay the principal back at maturity, the weighted average life is the same as the stated maturity. For amortising bonds, however, where companies repay some of the principal over the life of the bond, the weighted average life measures how much time unpaid principal is outstanding, which will differ from the stated maturity. The WAL tells investors how long it will take them to receive half of the bond’s par value (adjusted for payments in arrears). If a company issues a USD1.2bn five-year amortising bond that repays USD200m of principal in the first three years and USD300m in the final two years, the WAL is 3.25 years. In the case of asset and mortgage-backed securities, underlying receivables payments can pre-pay more quickly than legally necessary, leading to higher principal repayments. This by definition reduces the WAL of securitised debt.