Refunding occurs when an entity that has issued

callable bond A callable bond (also called redeemable bond) is a type of bond (debt security) that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches its date of maturity. In other words, on the call ...

s calls those

debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

from the debt holders ''with the express purpose'' of reissuing new debt at a lower

coupon In marketing, a coupon is a ticket or document that can be redeemed for a financial discount or rebate when purchasing a product. Customarily, coupons are issued by manufacturers of consumer packaged goods or by retailers, to be used in r ...

rate. In essence, the issue of new, lower-interest debt allows the company to prematurely refund the older, higher-interest debt. On the contrary, NonRefundable Bonds may be callable but they cannot be re-issued with a lower coupon rate. i.e. They cannot be refunded.

See also