medium · Debt Capital Markets bond-instruments-structures
An issuer redeems 35% of its bonds via an equity claw at 108.
If the bonds were originally issued with a 2% Original Issue Discount (OID), how does the redemption affect the issuer's interest expense in the year of the claw?
- It lowers interest expense because OID is only paid if the bond reaches its full maturity.
- The OID is 'refunded' to the issuer because the debt was retired earlier than expected.
- It causes an immediate 'acceleration' of the remaining OID amortization for the redeemed portion, creating a one-time non-cash charge.
- It has no effect because OID is an equity adjustment, not a debt adjustment.
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