PAC Bond(redirected from Planned Amortization Class Bonds)
Stands for Planned Amortization Class bond. A tranche class offered by some CMOs that has a sinking fund schedule and an ability to make principal payments that are not subordinated to other classes.
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A collateralized mortgage obligation that seeks to protect investors from prepayment risk. PACs do this by setting a schedule of payments; if prepayments of the underlying mortgages exceed a certain rate, the life of the PAC is shortened. If they fall below a certain rate, the life of the tranche is extended. This helps protect investors in case the holders of the underlying mortgages do not pay off their mortgages as expected.
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