What characterizes the refunding process?

The refunding process is primarily characterized by the replacement of existing bonds with a new bond issue. This typically occurs when an issuer takes advantage of lower interest rates or improved credit ratings, allowing them to issue new bonds to pay off the old ones. By doing so, they can achieve cost savings on interest payments, potentially extend the maturity of the debt, or change the structure of the debt.

In this context, the new bond issue might have different terms, such as a lower interest rate than the existing bonds, which helps in reducing the overall debt burden. This process is often strategically used to manage debt effectively and optimize the issuer's financial position.

While other aspects like extending maturity or reducing debt service payments may occur as secondary benefits to refunding, the core characteristic is the replacement of old debt with new securities, making it central to the definition of refunding.