Municipal Bond Forum
Sinking fund calls
Q
I have a question regarding mandatory sinking funds. If a muni bond has been pre-refunded and is properly defeased, is the issue still subject to the mandatory sinking fund that was originally part of the issue?
A
James A. Klotz responds:
Sinking fund calls are an integral part of the structure of the bond issue.
Even if a bond is escrowed to maturity (ETM) and all calls are defeased, the sinking fund calls remain in effect.
Although it can occur, it would be very unusual to find a bond with sinking fund calls that precede the pre-refunding date.
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