Partial Redemption

Bob Marley’s “Redemption Song” asks us to emancipate ourselves from mental slavery. That’s a great goal and all, but we’d like to offer an alternative: the “Partial Redemption Song,” in which investors emancipate themselves from a portion of their investment.

Like...let’s say Timmy has $50,000 invested in AppWow, a flashy new tech company. While he normally loves living dangerously, the company’s stock has been a little too volatile for his liking lately, so he decides to sell 50% of his shares and invest the money elsewhere. This is what we call a “partial redemption:” we’re only liquidating—or redeeming—part of our investment.

Investors aren’t the only ones who can get in on partial redemption fun, though. Let’s say AppWow issued a bunch of callable bonds to fund R&D for their new app lineup. Since they’ve issued those bonds, though, interest rates have gone down. They’d really love to redeem some of them and then reissue them at the lower interest rate, so they offer to buy back 30% of what they’d issued prior to their maturity date. To sweeten the deal, they’ll also pay a premium to bondholders who take them up on the offer. Since callable bonds usually pay a slightly higher interest rate than noncallable ones, the interest plus the premium might make this partial redemption a very enticing offer.