Harmless Warrant

What it is

A harmless warrant (also called a wedding warrant) is a provision attached to a bond that requires a bondholder to surrender an existing bond to the issuer before purchasing another bond from the same issuer with the same terms (maturity, principal amount, and yield). It prevents an investor from owning two identical bonds from the same issuer at the same time.

How it works

The warrant is embedded in the bond and is not detachable.
If an investor wants to buy a second bond from the same issuer that has the same terms as one they already hold, they must first give the issuer the original bond.
The provision applies only to bonds with the same terms; an investor may buy different bonds (different maturity, yield, or principal) from the same issuer without surrendering the original.

Why issuers use harmless warrants

To control total outstanding debt and avoid being overexposed to obligations triggered by multiple identical bonds being held or called simultaneously.
To limit situations where investors could demand multiple similar bonds that the issuer may not be able to cover.
To force investors to prioritize which bond terms are most valuable or to choose to surrender an existing bond to obtain a new one.

Key features

Non-detachable: the warrant cannot be separated or sold independently of the bond.
Limited scope: it only restricts acquiring multiple bonds with identical terms from the same issuer.
Not universal: many bonds are issued without harmless warrants.

Comparisons

Harmless warrant vs. standard warrant:
Harmless warrant: an embedded provision tied to a bond that restricts purchasing a second identical bond without surrender.
Standard warrant: a derivative that gives the holder the right (but not the obligation) to buy or sell an underlying security at a specified price before expiration. Standard warrants may be detachable and tradeable.
Detachable warrants: can be separated from the underlying security and traded or sold independently on secondary markets.
Penny warrant: a warrant with a nominal exercise price (e.g., one cent).

Practical implications for investors

If you like a bond’s terms and expect to repeat that investment, a harmless warrant may force you to choose whether to keep the original position or surrender it for a new issuance.
Because the warrant is non-detachable, you cannot monetize the warrant separately from the bond.
Always check offering documents for any warrant provisions before purchasing bonds from the same issuer repeatedly.

Key takeaways

A harmless warrant requires surrendering an existing bond to buy a second bond from the same issuer with identical terms.
It is used by issuers to limit cumulative debt and reduce risk from multiple similar claims.
The warrant is non-detachable and does not prevent buying bonds with different terms.