A make-whole changes the exercise profile of an option-like prepayment right.
Move the selected terms to see how a simplified teaching model allocates the call estimate across the make-whole and callable years. The output is not a market price, trading mark or recommendation. Semiannual cash flows and accrued interest are included; the make-whole reference curve remains a teaching approximation.
Pre-set structures
Market
Solves the bullet reference, including the tightening scenario; not the callable bond.
Assume a linear tightening by first call, then a constant spread. Effective tightening is capped at the starting credit spread: the scenario never creates a negative spread.
Embedded-call teaching estimate
Under the selected assumptions, the prepayment-right teaching estimate is 5.2 points of par, with 100% allocated to post-NC rights added first. This is not a market price or trading conclusion.
years from issue; clean price (% of par), unchanged flat curve
Reconcile the estimate & cash flows
Per 100 par: bullet 111.306; post-NC-only callable 106.084; full callable 106.084. Bullet minus full = 5.222 points.
Credit spread: 300 bps at issue, 100 bps from first call.
7% means 3.5 paid every half-year per 100 par. Coupons due on an exercise date are paid separately; accrued interest is added to a clean redemption price between coupon dates. The chart is an unchanged-flat-curve illustration, not an expected future strike.
The lattice uses 48 exercise dates per year, approximating an American-style right. The two slices are sequential differences between nested exercise rights, not independent options or an exercise forecast.
Illustrative teaching model: full methodology here. A Hull-White one-factor short-rate model on a trinomial tree, fitted to the selected initial risk-free curve by construction. Credit is a constant-spread input with an optional tightening scenario. Every numerical output is an assumption-dependent teaching estimate, not a market price or trading mark. The tool ignores default/recovery, call frictions, transaction-specific strategy and the exact dated calendars, notice periods and indenture-specific reference-yield conventions.
Go deeper. Request controlled access to the complete Covenants Bible or read the public nine-part LevFin Book condensed edition.
The full framework is Part VII of the LevFin Book: why a builder basket is a path-dependent call, an equity cure a knock-in, a make-whole an American call with a stepping strike. See also the tool methodology page for the model, variables and worked example.
What this make-whole calculator does
A make-whole is often talked about as if it were something the borrower owns. The teaching point of this calculator is the opposite. The issuer’s redemption right can be analyzed as a call on its own bond, with a strike that steps down after the non-call period. The make-whole formula is contractual call protection: it raises the early-redemption price but does not prohibit exercise or guarantee that the call is out-of-the-money.
Move tenor, non-call, coupon, rates, spread and volatility to see how a Hull-White one-factor short-rate teaching model allocates the embedded-call estimate across make-whole years and callable step-down years. Presets cover common high-yield structures such as 5NC2, 6NC3, 7NC3, 8NC3 and 10NC5.
Every numerical output is an assumption-dependent teaching estimate, not a market price or trading mark. The tool ignores default and recovery, call frictions, transaction-specific strategy and the exact dated calendars, notice periods and indenture-specific reference-yield conventions. Term Loan B soft call 101 is a different instrument and is not in this lattice.
Read the make-whole methodology for the model, the eight variables, the strike function and a worked example. Related teaching tools: the incremental debt calculator and the builder basket calculator.
Common questions
A make-whole is the lender's shield during non-call: the strike is typically the present value of protected coupons and the specified first-call redemption price at a Treasury reference yield plus a spread, with any contractual floor and accrued interest treated separately. The issuer may also have a pre-first-call redemption right at the make-whole price; additional exceptions depend on the document.
It is a Hull-White one-factor short-rate teaching engine on a trinomial tree. It compares three bonds — bullet, post-NC-only callable, and full callable — to form a sequential teaching estimate from nested exercise rights.
No. Every numerical output is an assumption-dependent teaching estimate. The tool ignores default and recovery, call frictions, transaction-specific strategy and exact dated calendars, notice periods and indenture-specific reference-yield conventions. It is not a trading mark or recommendation.
A seven-year bond that is non-call for three years. After the non-call window the strike typically steps down, for example p50, then p25, then par. Presets cover common high-yield structures such as 5NC2, 6NC3, 7NC3, 8NC3 and 10NC5.
The make-whole formula often makes early exercise expensive. The Value Split compares nested rights: post-NC calls first, then the incremental effect of adding make-whole exercise. The result depends on the selected assumptions.
No. Term Loan B soft call is a document-specific fee on qualifying repricing events during a protection window, not a rate-linked make-whole. It is outside this tool.