Balloon maturity

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Balloon maturity

Any large principal payment due at maturity for a bond or loan with or without a sinking fund requirement.

Balloon Maturity

A provision in some bond agreements in which a large number of bonds comes due at the same time, usually at maturity. Balloon maturity occurs only in bonds without a sinking fund provision; rather than retiring part of the principal at different times, balloon maturity returns most or all of the principal on a single date. Issuers of bonds with balloon maturities can have difficulty in repayment if they have not set aside a sufficient amount of money.
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Trepp expects the delinquency rate to increase as 2007-vintage loans--originated under the weakest underwriting standards--start reaching their five-year balloon maturities.