* Long-term debt disclosures are incomplete because they omit dates of maturity, collateral, interest rates, and sinking fund requirements
for all long-term borrowings for each of the five years following the date of the last balance sheet presented per SFAS No.
This occurs without controlling for differences in bond features such as ratings, call options, insurance, sinking fund requirements, or years-to-maturity.
Using this research design, the [b.sub.0], [b.sub.1], and [b.sub.2] coefficients can also be used to measure the pretax yields for tax-exempt bonds ([b.sub.0]), AMT bonds ([b.sub.0] + [b.sub.1]), and taxable bonds ([b.sub.0] + [b.sub.2]), after subtracting the risk premiums associated with differences in bond ratings, call provisions, sinking fund requirements, insurance, and years-to-maturity These risk-adjusted yields can then be used to estimate the implicit taxes in tax-exempt and AMT bond yields.
In addition, bonds with sinking fund requirements ([b.sub.6] > 0) and insured bonds ([b.sub.7] > 0) have higher average yields.
Third, risk-adjusted pretax yields are estimated from a regression model that removes the estimated risk premiums associated with differences in bond ratings, call provisions, sinking fund requirements, insurance, and years-to-maturity.
Previous work in this area has analyzed these provisions in terms of interest rate risk,(1) default risk,(2) and the "accumulation game," in which investors increase the value of a sinking fund bond issue by increasing the concentration of its ownership.(3) This paper studies sinking fund bonds when an issuer has bought some of its own bonds in anticipation of future sinking fund requirements. The analysis reveals that investor holdings decline in value as issuer prepurchases increase.
Many issuers stay well ahead of their sinking fund requirements. Continuing with the above example, although the issuer need not retire any bonds until 1997, it might have purchased $25 million in the open market by the end of 1996.
Aside from the option to purchase bonds for the purpose of satisfying sinking fund requirements, most sinking fund bond indentures include an American call option which allows the issuer to call part or all of the issue at some schedule of prices.
In other words, the face value required to meet the contractual sinking fund requirements equals the face value available for that purpose, namely that held by investors, by the company in treasury, and by the trustee.
In our example, the issuer could deliver the $25 million to the trustee with instructions to satisfy some future sinking fund requirement. If interest rates happen to be relatively low in 1997, this designation will have lowered the value of each bondholder's position: without the designation, $100 million of the bonds would have been outstanding and each investor would have expected one-fourth of his holding to be called through the $25 million sinking fund call.
Judge Lifland rejected this argument, pointing out that maturity dates, interest rates and sinking fund requirements
were all changed with the new debt.
Maturities and sinking fund requirements
on long-term debt are as follows: 19X2 $10,000 19X3 10,000 19X4 10,000 19X5 65,000 19X6 15,000 19X7-19X8 40,000 $150,000