Workout Period
Candlefocus EditorAt this point, the issuer or their underwriter will start to monitor the bond’s performance, looking for any signs that the initial price and yield are no longer a fair reflection of the bond's actual value. If this is discovered, the issuer and underwriter will take steps to adjust the terms of the bond in order to bring it back into alignment with the rest of the market.
During the workout period, the issuer and underwriter will typically provide new information to the public, such as updated financial statements, more detailed credit history and performance information, and any other relevant data. This data is used by investors to put a more accurate value on the bond's current price and yield. Armed with this information, active investors or those looking for trading opportunities can then use the workout period to make more informed decisions about their investments.
It is important to note that, while a workout period can be seen as an opportunity for arbitrage, there is no guarantee that traders who take advantage of such periods will actually benefit from the changes. In some instances, the price of the bond may remain the same or even lower after the workout period has concluded. Moreover, as the bond's price and yield are constantly changing, it may be a good idea for investors to only buy or sell when they have been given the correct information and feel comfortable with the transaction.
Overall, the workout period provides a mechanism for the issuer, underwriter and investors to make informed decisions about their investments and to adjust the terms of a bond in order to ensure that it is trading at a fair price. Without this period, bonds may continue to trade at prices that are not reflective of their actual value. As such, the workout period is just one of the many tools used to help facilitate the bond trading process.