A harmless warrant is a legal document attached to some bonds that are issued from the same issuer. It is a provision that requires a bondholder to surrender the purchased bond back to the issuer if they decide to buy another bond with similar – or the same – terms from the same issuer.

Harmless warrants are intended to protect the issuer from taking on too much debt, which can happen if an investor begins purchasing numerous identical securities from the same issuer, which increases the issuer’s liability. By requiring the investor to choose only one bond instead of potentially dozens, it limits their ability to leverage the issuer’s financial responsibility.

It is important to know that harmless warrants don’t restrict a bondholder from purchasing bonds with different terms from the same issuer. Not all bonds have harmless warrants attached to them, so it is important to check each bond’s documents before buying.

While harmless warrants can limit an investor’s ability to leverage the issuer, they do offer assistance in making an informed decision. By obligating the investor to make a choice between the bonds, the warrant forces them to decide which terms are the most crucial to their investment goals.

Ultimately, harmless warrants are an essential tool for investors who are considering buying a bond from the same issuer multiple times. By requiring the investor to surrender an existing bond in the event of a repeat purchase, it ensures that the issuer won’t become overburdened by too much debt. The warrant also helps investors to make better decisions, as it forces them to weigh the different terms and conditions of a given issuer’s bonds when making their purchase.