Prerefunding Definition

When a corporation plans to redeem a callable bond on the first date the bond can be called, and uses income from a second bond to do so. The process occurs when interest rates have fallen and a company wants to take advantage of the lower cost of money. The company puts the income it receives from the second bond in a safe investment, such as U.S. Treasury bonds, that match the maturity of the first bond. When the first issue reaches the first call date, the funds are available to pay it off. The first bond is called a prerefunded bond, which is also called a pre-re.
Webster's New World Finance

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