sinking fund provision

(redirected from Sinking-Fund Requirement)

Sinking Fund Provision

A provision in some bond indentures requiring the issuer to put money aside to repay bondholders at maturity. In bonds with such a provision, a fund or account is set up into which an issuer deposits money on a regular basis to repay the bond when it matures. See also: Sinking Fund Bond.

sinking fund provision

A stipulation in many bond indentures that the borrower retire a certain proportion of the debt annually. The retirement may be effected by calling the bonds from the investors (if interest rates have declined) or by purchasing the bonds in the open market (if interest rates have increased). This orderly retirement may be advantageous to a bondholder because it creates some liquidity; however, it also may cause the holder to give up a high-yielding bond at the call price (often at par) during a period of reduced interest rates. Also called bond sinking fund. Compare doubling option. See also funnel sinking fund.
References in periodicals archive ?
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.
From corporate America's standpoint, this wellspring of capital provides businesses with an attractive alternative to inflexible bank debt, expensive senior notes and subordinated debt with sinking-fund requirements, and costly preferred stock.
The combined aggregate amount of maturities and sinking-fund requirements for all long-term borrowings must be disclosed for each of the five years following the date of the latest balance sheet presented.