Sinking Funds Sample Clauses

A sinking fund clause requires a borrower, typically an issuer of bonds, to set aside funds periodically to repay or retire a portion of the debt before maturity. This is usually accomplished by making regular payments into a dedicated account, which are then used to buy back bonds on the open market or redeem them directly from bondholders according to a predetermined schedule. The core practical function of a sinking fund clause is to reduce credit risk for investors by ensuring that the issuer systematically accumulates resources to meet its repayment obligations, thereby lowering the likelihood of default at maturity.