I Received a Tender Offer from a Bond Issuer — What Should I Do?
Why Tender Offers Often Benefit Issuers More Than Investors — And How to Decide If You Should Accept
If you’re a bondholder and you've just received a tender offer from a bond issuer, you may be wondering what it means — and more importantly, what you should do. At first glance, it might seem like a good deal: the company is offering to buy back your bond, often at a premium to its current market price. But hold on — not all that glitters is gold. Tender offers are typically made in the best interest of the issuer, not necessarily yours.
In this post, we’ll break down what a tender offer is, why issuers make them, and the key considerations you should weigh before deciding whether to accept.
What Is a Bond Tender Offer?
A bond tender offer is a proposal from a bond issuer — usually a corporation — to repurchase some or all of its outstanding debt securities before they mature. The company may offer to buy back the bonds at a fixed price, sometimes above par (face value), or above current market value.
Tender offers can be:
Voluntary, meaning you have the option to accept or reject it.
Partial or full, depending on whether the company wants to repurchase a portion or all of the outstanding bonds.
You’ll usually receive documentation explaining the offer terms, including the price, deadline, and rationale behind the move.
Why Do Issuers Make Tender Offers?
There are several reasons a company might want to buy back its debt early:
Reduce Interest Costs: If market rates have fallen since the bonds were issued, the company may want to retire expensive debt and refinance at a lower cost.
Clean Up the Balance Sheet: Reducing liabilities can improve financial ratios and boost credit ratings.
Take Advantage of Market Discounts: If the bonds are trading below par, the issuer might be able to repurchase them at a discount, realizing a gain.
Reduce Refinancing Risk: Buying back bonds before maturity may reduce the pressure of upcoming large debt repayments.
Generate Favorable Optics: Reducing debt can be seen as a proactive, shareholder-friendly move, especially if the company is flush with cash.
While these are all valid corporate objectives, they often come at the expense of bondholders.
Why a Tender Offer May Not Be Good for You
Here’s the truth: tender offers generally favor the issuer, not the investor. Here’s why: