What is the First Call Date?

The first call date is the earliest date on which the indenture agreement for a callable bond issuance allows the issuer to redeem all or part of the bond. The price at which the redemption can be made is specified in the indenture agreement; the price is usually set at par or slightly above this figure.

Why Does an Issuer Use a First Call Date?

An issuer employs the first call date concept to give itself the option to terminate a bond liability before the maturity date and replace it with lower-cost bonds if the market interest rate declines. The first call date concept is used to give bondholders some protection, so that bonds cannot be redeemed too soon, thereby allowing the bondholders to initially earn a reasonable interest rate on the bonds. The first call date is typically set for five to ten years after the bond issuance date.

When a bond is selling at a premium, it may be quoted at the yield through the first call date, on the assumption that the bond will be redeemed on that date.