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Answer: Execute an appealing tender offer to the bond holders
A **tender offer** allows the issuer to offer to repurchase the bonds from holders, which can enable early retirement of the debt even if no call provision exists. A **put provision** benefits the bondholder, not the issuer. A **call provision** must be included in the indenture to be exercised; if it was omitted, it cannot be used. Therefore, the most likely way for the issuer to retire the bond before maturity is to execute a tender offer.
Author: Manit Arora
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Q-504.2. Four years ago, Acme Corporation issued a bond with a fixed-rate coupon and an original maturity of seven years; that is, the tenor (term to maturity) is three years. In the meantime, market interest rates have declined and the issuer wants to extinguish (retire) the bond's principal which is obviously before the stated maturity date. Among the following methods, which is the MOST likely to make it possible for the issuer to retire the date before the maturity date?
A
Execute an appealing tender offer to the bond holders
B
Exercise of a put provision that was included in the indenture
C
Exercise of a call provision that was inadvertently omitted from the indenture at issuance
D
None of the above: unless there is a call provision in the indenture, the issuer has no legal way to extinguish debt prior to the stated maturity date
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