PARs

Par bonds (PARs) can be exchanged dollar for dollar for existing debt. Typically, these bonds have fixed coupons and a long-term maturity (20-40 years) and are repaid in full on the final maturity. In some cases, the coupon is stepped up progressively over the life of the bond. The debt reduction is obtained by applying a coupon rate on the par value of the bond well below the current market interest rate. In other words, the market value of the bond is well below its face value, because of the low coupon. These bonds are sometimes known as interest-reduction bonds. The difference between the par value of the bond and its market value at issue time can be regarded as the amount of debt forgivenenss.