Qualcomm (QCOM) has decided to prerefund a bond issue that still has several years remaining to maturity. What is the effect of this action on outstanding bonds?

Prerefunding an issue is accomplished by selling new bonds and dedicating funds raised to retiring an older bond issue at its first call. The new bonds normally have a lower coupon than the old bonds, effectively lowering the company's fixed interest costs. The funds raised are typically invested in Treasury issues, ensuring their availability to pay off the older issue at the call date.