A coupon bond that gives the issuer the right to deliver additional bonds (tranches) to the holders (investors) at preset dates and at a predetermined price. The investor is under obligation to purchase the bonds offered in accordance with the set terms and conditions. For a given delivery, the additional bonds (tranches) have the same features (coupon, maturity) as well as the date on which additional deliveries may take place. The multiple tranches are equivalent to a portfolio of embedded European put options.

The issuer’s right to issue additional tranches depends on the level of their present value relative to the strike price. If on the a specific date, the present value is lower than the strike price, it would be in the interest of an issuer to exercise. However, if the issuer exercises this option once, it would not necessarily be under obligation to exercise it again in the future.