Refunding occurs when an entity that has issued callable bonds calls those debt securities from the debt holders with the express purpose of reissuing new debt at a lower coupon rate.
In essence, the issue of new, lower-interest debt allows the company to prematurely refund the older, higher-interest debt.
On the contrary, non-refundable bonds may be callable but they cannot be re-issued with a lower coupon rate—they cannot be refunded.
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