Definition of refunding

1. process of paying off maturing or outstanding debt with proceeds of a new issue, often at a lower interest cost to the issuer. The U.S. Treasury Department uses the refunding process to replace maturing Treasury bills and notes with new issues.
2. redemption of a corporate or municipal bond issue prior to the maturity date. This can be advantageous to the issuer if interest rates fall, but disadvantageous to the bondholders. Bond issues are refundable if there is a provision in the indenture allowing early call or redemption. Some refunding provisions permit early calls with excess funds, but prohibit refunding with the proceeds of a lower interest rate issue.
   A call provision allows the bond issuer to pay part or all of the issue early by paying a specified redemption price to the bondholders. Some long-term industrial revenue bonds, however, are allable except for refunding purposes. See also advance refunding; defeasance.

Finance: process of selling a new issue of securities to obtain funds needed to retire existing securities. Debt refunding is done to extend maturity and/or to reduce debt service cost. See also refinance.
Merchandising: returning money to a customer who is dissatisfied with a product.

1. replacing an old debt with a new one, usually in order to lower the interest cost of the issuer. For instance, a corporation or municipality that has issued 10% bonds may want to refund them by issuing 7% bonds if interest rates have dropped. See also prerefunding; refinancing.
2. in merchandising, returning money to the purchaser, e.g., to a consumer who has paid for an appliance and is not happy with it.