Make whole call spread

A "make whole call spread” refers to a provision in a corporate bond that allows the issuer to redeem the bond before maturity by paying the bondholder the present value of the remaining cash flows plus a spread over a comparable Treasury issue. This spread compensates the bondholder for the early redemption of the bond.

Unlike standard call provisions, which may allow the issuer to call the bond at a fixed price (usually the par value), the make-whole call provision calculates a lump-sum payment based on the net present value (NPV) of future cash flows. The NPV includes both the remaining coupon payments and the principal payment that the investor would have received if the bond had continued to maturity.

The value of a make-whole call spread is to provide a certain level of protection against the risk of early redemption of the bond by the issuer. By receiving the present value of future cash flows plus a spread over the Treasury rate, investors are compensated for the potential loss of future interest income if the bond is called early.