Reforming the Unbargained Contract

Abstract

Until the last couple of decades, interest rates remained relatively stable, thus providing little incentive for corporate borrowers to seek novel ways of redeeming purportedly non-callable bonds at par. But with the advent of junk bonds and periods of great interest rate volatility, issuers have been provided with powerful incentives to explore the relatively uncharted waters of par calls. This Article examines the authority for and legality of such par calls and ultimately proposes a redefinition of the issuer-bondholder relationship. This redefinition accounts for the realities of the marketplace and should lead a return to more settled expectations in both issuer and investor camps. Along the way, the redefinition suggests a principled framework within which to litigate disputes when they arise, without resort to artificial constructs based on bargaining that does not actually take place or unsatisfactory "contort" theories.