What does it mean if an issuer has reserved a right to call bonds that have been advance refunded?
In some cases, an issuer may reserve the right to call an escrowed-to-maturity bond prior to maturity. For example, an issuer may advance refund a bond that is scheduled to mature on January 1, 2030. Even though the legal documents would allow the issuer to call these bonds for redemption in 2015, the issuer may instead establish an escrow that will continue to pay interest through January 1, 2030 and then will be applied to pay the principal amount due on January 1, 2030. This bond has been escrowed-to-maturity. However, the issuer may have included in the advance refunding document a specific reservation of its right to later exercise the 2015 call provision. In that case, the issuer may choose to redeem the bonds in 2015, even though the escrow is fully funded to pay the bonds through maturity.
