OVO | Sinking Funds

Overview

Sinking funds are a cornerstone of OVO’s asset-backed securitized issuances, enabling disciplined non-recourse project financing across diverse asset classes. They provide a structured mechanism to fund interest, dividends, and principal obligations, delivering security and predictability for both institutional investors and project sponsors.

Within OVO’s framework, sinking funds operate alongside U.S. Treasury credit enhancement, trustee oversight, and blockchain-enabled transparency—forming the financial engine that converts structured issuance proceeds into resilient, non-recourse capital deployment.

What is a Sinking Fund

A sinking fund is a dedicated account or investment vehicle established to service debt obligations or fund defined future commitments. Historically, sinking funds have underpinned sovereign finance, infrastructure development, and capital preservation—from the Italian city-states of the Middle Ages to British Crown initiatives in the 17th and 18th centuries.

Their longevity reflects a proven ability to impose discipline, transparency, and certainty in large-scale capital programs.

Historical Context

Sinking funds remain central to modern capital markets and public finance, including:

• Singapore’s Central Provident Fund (CPF): Mandatory contributions invested in diversified assets, funding social and infrastructure programs.
• Japan’s Postal Savings System: Individual savings channeled to government and infrastructure projects.
• New York City Capital Stabilization Fund: Annual surplus allocations financing schools, parks, and transportation projects.

These examples underscore the role of sinking funds as reliable, time-tested instruments for long-duration capital formation.

Critical Role in Institutional Finance

Beyond sovereign and municipal use, sinking funds are foundational to:

• Asset-backed securities (ABS)
• Mortgage-backed and real estate structures
• Credit card and receivables issuances
• Synthetic and structured collateral programs

Global institutions—including major banks, payment networks, and structured finance platforms—rely on sinking funds to ensure timely repayment, reduce default risk, and maintain investor confidence.

Types of Sinking Fund Bonds

• Callable Bond Funds: Accumulated reserves supporting scheduled or early redemption
• Strategic Purpose Funds: Capital reserved for defined future obligations
• Debt Retirement Funds: Systematic accumulation to retire outstanding par

Each structure is tailored to the issuance profile and investor return objectives.

Oversight and Governance

OVO sinking funds are administered under strict institutional governance:

• Managed by an independent securities trustee
• Supervised by a designated Protector with full audit access
• Governed by the terms set forth in the PPM and transaction documents

This framework ensures disciplined fund growth, compliance with payment waterfalls, and timely retirement of obligations.

Blockchain & Tokenization

OVO integrates blockchain infrastructure to modernize sinking fund administration while preserving institutional controls.

Key advantages include:

• Disintermediation: Reduced reliance on custodians, broker-dealers, and clearing systems
• Immutable Transparency: On-chain verification of fund activity via cryptographic records
• Automated Compliance: Smart contracts execute waterfall distributions, dividends, coupons, and mandatory calls
• Institutional Documentation: PPMs, term sheets, and reliance letters embedded for auditability
• US Treasuries Credit Enhancement: Treasury collateral provides a default backstop while preserving non-recourse structure

Mandatory Call Option

OVO issuances incorporate a mandatory call mechanism triggered once sinking funds achieve full redemption coverage. By accumulating reserves ahead of maturity, this structure:

• Enhances yield-to-call outcomes for investors
• Accelerates capital recycling
• Preserves the integrity of non-recourse project financing

Funding the Sinking Fund

Sinking funds are capitalized directly from issuance proceeds and structured to:

1. Net proceeds from the sale of ABS Notes or Shares.
2. And applied to multiple classes of institutional and private funds

Funds are structured to:

• Service annual dividend or coupons
• Accumulate reserves to trigger mandatory calls
• Fully retire ABS obligation over time

For interest-bearing collateral (e.g., mortgage-backed securities or credit cards), interest payments may flow directly into the sinking fund, further enhancing security and predictability.

Strategic Importance

OVO’s sinking fund architecture integrates:

• Provides investors with transparent payment assurance
• Enables non-recourse project financing for asset owners
• Supports higher-yield opportunities through structured call options
• Ensures scalable, disciplined execution for large-scale projects

Summary

OVO’s sinking fund framework delivers:

• Investor Security: Trustee oversight and systematic capital discipline
• Project Financing Freedom: True non-recourse execution
• Technological Efficiency: Blockchain-enabled transparency and compliance
• Credit Protection: U.S. Treasury-backed default support

The Result:

• Investors receive secure, predictable returns.
• Project sponsors achieve fully funded developments executed with resilience and speed.

OVO Services

OVO supports clients throughout the issuance lifecycle, including:

• Pre-securitization compliance and preparation
• Structuring and execution of asset-backed securities
• Listing and exit coordination
• Post-closing sinking fund management

Institutional-grade capital solutions for large-scale, transformative projects.