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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
The only exclusion to such a presentation was when cash purchases were made for debt to meet sinking-fund requirements. This exception was eliminated in 1982, when FASB issued SFAS 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, thereby amending its previous decision and effectively making most forms of debt extinguishment extraordinary items.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This proposed statement also would rescind FASB Statement No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. In addition, this proposed Statement would rescind FASB Statement No.
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.