Legal Definitions - call-protection clause

A call-protection clause is a provision in a bond or preferred stock issue that prevents the issuer from redeeming or calling back the security during a specific period. This clause is designed to protect investors from having their investment unexpectedly terminated before the agreed-upon maturity date.

For example, suppose a company issues bonds with a call-protection clause that lasts for five years. During this period, the company cannot redeem or call back the bonds. This means that investors who purchase these bonds can be assured that they will receive interest payments and their principal investment for at least five years.

Another example is a callable preferred stock with a call-protection clause that lasts for three years. During this period, the company cannot redeem or call back the preferred stock. This means that investors who purchase these shares can be assured that they will receive their dividends and their investment will remain intact for at least three years.

Overall, call-protection clauses provide investors with a level of security and predictability, allowing them to make informed investment decisions.