Call-Protection Clause Law and Legal Definition
Call protection clause refers to a clause in a bond issue or a callable-preferred-stock issue which prohibits the issuer from recalling the security during a specified period. The period of time during which the bond cannot be called is often called the cushion.
This clause prohibits the issuer from calling a bond from an investor during the early years of the security's life. It also protects the bondholders from the risk of falling interest rates before the call date. Municipal and industrial bonds usually have ten years of call protection, while protection on utility debt is often limited to five years. A longer period of call protection is always advantageous to the investor because calls mostly occur during periods of reduced interest rates.
