Refunded Bond
Categories: Bonds
You run a company that issues $10 million worth of bonds, with an interest rate of 8%. A little time passes. Interest rates drop and now you can issue similar bonds with a 6% rate. So...you run a refunding operation.
You sell $10 million worth of 6% bonds and use the cash to pay off the 8% ones you issued earlier. You save on debt service costs. Meanwhile, the old bonds get a new name. They are refunded bonds. They're the bonds you bought back using the refunding operation.