sinking fund provision

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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 ?
8bn) loan to Bank of Moscow, which was utilised the next day for the purchase of RUB295bn in government bonds, placed by the country's finance ministry with sinking fund provisions for the purpose of the bailout.
Call and sinking fund provisions also influence bond betas since both alter the duration of the bond, and bond betas are increasing functions of duration.
i] = Sinking fund provision for bond i, measured by a dichotomous variable with i zero indicating no sinking fund provision and one indicating the presence of a sinking fund provision
Sinking fund provisions can serve as substitutes for call provisions (Kalotay and Williams (1992) and Ogden (1988)).
The Use of Sinking Fund Provisions This table presents data on the fraction of noncallable and callable bonds that included sinking funds by rating category.
Other data components summarize call features, mandatory and optional redemption provisions including designated and risk events holders repayment options, liquidation and exercise rights, covenants for exchange and conversion, and sinking fund provisions.
Preferred stock may have mandatory sinking fund provisions, as well as call/redemption provisions prior to maturity, which can be a negative feature when interest rates decline.
Many corporate bond indentures contain sinking fund provisions.
Financial Derivatives Toolbox: Pricing and sensitivity calculations for sinking fund provisions, range bonds, and step up/down coupon bonds
They will not be subject to redemption prior to their maturity and will not have the benefit of any sinking fund provisions.
s (NYSE:FE) subsidiary, The Toledo Edison Company, pursuant to sinking fund provisions of its 8% Series First Mortgage Bonds due 2003, will redeem $400,000 of the bonds on November 1, 1999.
s (NYSE:FE) subsidiary, The Cleveland Electric Illuminating Company, pursuant to sinking fund provisions of its $90 Series S Preferred Stock, will redeem 18,750 shares on November 1, 1999, at a price of $1,000 per share plus accrued dividends up to the date of redemption.