Fixed Rate Bond Make-Whole Calculation and Manifest Errors

How does the formula work for fixed rate bonds which include make-whole calls at the time they are called for redemption?

When a fixed rate bond includes a make whole call, this feature allows the issuer to repay the bonds early, based on a formula that is designed to approximate their fair value, or a small premium to it, at the time they are called for redemption.

• It considers the yield in the future for a government bond in the same currency with a similar maturity
• Adds a credit spread to that yield, but which is lower than the credit spread when the bonds were initially issued
• Discounts the remaining payments on the bond itself based on that interest rate

How is an insurance error corrected?

• Claim that the problem is a “manifest error”, i.e., a drafting problem, and to ask the Trustee to allow a correction to the documentation post-issuance. it can be quite difficult to give the trustee sufficient comfort that they are willing to accept this, and so as a result this route is not commonly used
• The issuer can work with its agents and advisors to develop a logical and/or legal argument as to why the adjustment isn’t needed, and then simply to do nothing. In this situation, the issuer has a memo in his file to back up his position and can then defend his lack of action if the investor claims in the future