How does this “cont callable,” “make whole calls” bond work?

Question

I was looking at this bond on TD Ameritrade:

This is a callable bond, so I'm wondering how that works, exactly.

TD Ameritrade says that this bond is "cont callable," which I assume is an abbreviation for "continuously callable." That means that the issuer can, at any time after the call date, pay the face value of the bond (plus accrued interest, I guess) in order to discharge their obligations. So, in this case, since the call date is only 6 months before the maturity date, this means the Ford Foundation can pay back the face value up to 6 months early, and thereby save up to 6 months of interest payments. (Pretty insignificant compared to the term of the bond.) Right?

It looks like there's an additional call provision, the make-whole call. This one is a bit more mysterious. My understanding here is that the issuer can exercise this one at any time, but they have to pay more depending on prevailing interest rates. I think that essentially, they have to pay enough that I could then go and buy a treasury bond with the same returns and still have a little bit left over. Am I on the right track there at all?

How can I tell how much, exactly, they have to pay me to exercise this option? Can I find that information on the TD Ameritrade website?

If the issuer exercises the make-whole call option, can that result in me getting a yield worse than the "yield to worst"?

Answer 1

CBX Market explains the make whole call:

PRIOR TO 12/01/2046,SUBJ TO MAKE WHOLE CALL AT THE GREATER OF PAR AND THE SUM OF THE PV OF THE REMAINING PRIN AND INT DISCOUNTED TO THE REDEMPTION DATE AT THE TREASURY RATE + 15 BP.

You are on the right track. This make whole call allows the issuer to buy back the bond at the greater of par and the price of the cashflows discounted at a rate slightly above treasury rates at any time between issuance and six months before maturity. As long as the bond's spread to treasuries is greater than 15 bps, the amount they would have to pay you is higher than the current price.

No, it would not result in a yield lower than the yield to worst. Yield to worst is the minimum yield considering all of the dates they could exercise the call option to buy the bond back.

The above is not investment advice or a recommendation to buy or sell securities. It is for educational purposes only and should not be relied on for an investment decision.