Interest rates have been steady at 6% for B-rated bonds, but the Fed decided to lower rates half a point. The company that issued bonds at 8.5% five years earlier, and which still has 15 years to go until they are paid off, seizes the opportunity to buy back their own bonds...at a premium...refinance them, and issue new paper at a cheaper 5.5%.
The phrase "at a premium" usually refers to bond redemptions in this vein, such that the issuer pays something like 102 cents on the dollar to buy back their bonds, and presumably reissue paper at cheaper interest rates. The phrase also refers to equity transactions, when Amazon or some other company buys the shares of another company "at a premium"...like, the shares of Shmears, the greatest seller of bagel spread, were trading at $14 last week and, after Amazon bid $17 a share to own the whole company, those shares are said to have been sold "at a premium" to their former $1.14-ish a share price.
Related or Semi-related Video
Finance: What is Equity Kicker?8 Views
Finance allah shmoop what is an equity kicker It's that
it's hiked it's up It's good Okay yeah You knew
we were going to start their well in finance Land
and equity kicker is usually a deal sweetener for debt
or lenders So shmoop akane valley bank loans whatever Dot
com five million bucks at eight percent interest but with
a catch and not a football catch get down The
bank doesn't feel that eight percent is enough to cover
the risk and well other craft that whatever dot com
brings with it they ain't google So in addition to
the eight percent interest shmoop akane valley bank wants an
equity kicker in the form of us A three percent
warrant coverage That is they want three percent of the
value of the loan of five million bucks or one
hundred fifty thousand shares or warrants to buy a share
It's like a really cheap price The option of whatever
dot com thrown in as part of the deal those
one hundred fifty thousand shares our equity and they kick
the debt deal to potentially be worth a lot more
Should things go well at whatever dot com but yeah 00:01:09.099 --> [endTime] We're not hopeful
Up Next
What is a Busted Convertible? A busted convertible is a convertible bond that will never be converted to stock because the underlying stock price i...
What are Bonds? The simplest explanation is that a bond is essentially an I.O.U. that is issued by a corporate or government institution to borrow...
What is a Deep Discount Bond? Bonds are priced in accordance to maturity, coupon, and rating, which all affect the yield. If any of these factors r...
What does “Buy Minus” mean? Buy minus orders are used when investors think a stock will drop in price for a short period of time and plan to pr...