sinking fund call

Sinking Fund Call

A provision in some bond indentures allowing the issuer to redeem a bond before maturity using money it had previously set aside in a sinking fund. A sinking fund is an account into which the issuer deposits money on a regular basis in order to repay the bond at some point in the future. A sinking fund call gives the company the ability to reduce its debt at its discretion. As with other callable bonds, a sinking fund call provision may only be exercised after a stated call date.
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sinking fund call

An issuer's call of a portion of an outstanding bond issue to satisfy the issue's sinking fund requirement. A sinking fund call is generally at par value with the bonds to be called determined by lot. Most bond issues provide investors with a period of protection between the date on which the issue is originally sold and the date on which the first sinking fund call takes place. For low-coupon bonds that sell at discount from par value, issuers will usually satisfy sinking fund requirements by purchasing bonds in the open market rather than calling them from investors. See also extraordinary call, optional call.
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 ?
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. With the designation, however, only $75 million are outstanding and each investor expects one-third of his bonds to be called.
Then the discussion assumes that the company meets its requirement through a sinking fund call. Equipped with both results, the company chooses that action which results in the lower bond value.
If, as assumed in this subsection, the issuer decides not to use its sinking fund call option, it will also choose not to use its acceleration option and not to use its American call option.
Since the accumulator knows that the only other way the issuer can acquire these bonds is through a sinking fund call at par, the accumulator can demand par for this quantity of bonds.(16) So, the value of the outstanding bonds in this case is