Doomsday Call

The president's phone rings. It's the Joint Chiefs. (Now legal in 11 states.) A large alien spacecraft has appeared over Washington, and radiation emanating from the ship suggests the warming up of a death rate. One kind of doomsday call.

Another has to do with the bond market.

"Call" in this case has to do with calling in a debt. When a bond is issued, it has a maturity date. You buy a $1,000 bond from Canadian MapleWorks at 10% interest, maturing in 10 years. So you'll get $100 a year (that's the 10% interest) every year for each of the next 10 years.

The doomsday call allows the bond issuer to call the bond in early. So, under certain conditions, Canadian MapleWorks could decide to pay out a fixed amount to buy back all its bonds (or, to put it another way, to call them in).

It's doomsday for the bond holder, because now they don't get their full 10 years of interest. They have to settle for whatever the pre-arranged amount is (set out as part of the stipulations when the bond was issued).

The purpose for the call is to provide a safety valve in case interest rates drop. If rates fall and Canadian MapleWorks can now issue bonds at 7% interest instead of 10% interest, they'd be better off exercising the doomsday call on the 10% bonds and then replacing them with 7% versions. Ultimately, they'd pay out less to borrow the money.

The whole doomsday call thing is popular in Canada, maybe because life in the great wide North is more precarious, with the potential for frostbite in April and beaver attacks year 'round. Whatever the case, a lot of Canadian corporate bonds include a doomsday call, to the extent that they are sometimes known as "Canada calls."