OVO | Sinking Funds

Overview

Sinking funds are a cornerstone of OVO’s asset-backed securitized issuances, enabling non-recourse project financing across diverse asset classes. They ensure that interest, dividends, and principal obligations are systematically funded, providing security to both investors and project owners.

A sinking fund is a dedicated account or investment vehicle established to repay debt obligations or fund future financial commitments. Historically, sinking funds have supported sovereign debt repayment, infrastructure investment, and capital preservation — from the Italian city-states of the Middle Ages to English crown initiatives in the 17th and 18th centuries..

Historical Context:

• 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 highlight sinking funds as a proven financial mechanism for reliable, disciplined funding of large-scale projects.

Critical Role in Finance

Sinking funds extend well beyond sovereign or municipal programs, serving as essential tools in:

• Sovereign debt
• Mortgage-backed securities
• Real estate investments
• Credit card issuances
• Synthetic asset-backed collateral structures.

Leading global institutions — including Visa, MasterCard, and major banks — rely on sinking funds to ensure timely repayment, mitigate default risk, and maintain investor confidence.

Types of Sinking Fund Bonds

• Callable Bonds: Reserves established to repurchase bonds at a premium.
• Strategic Purpose Bonds: Funds secured for defined future objectives.
• Debt Retirement Bonds: Structures for early retirement of outstanding obligations.

Oversight and Governance

Sinking funds are managed by a dedicated trustee and supervised by an independent Protector with full access to financial records. This governance framework ensures:

• Compliance with offering agreements
• Disciplined, systematic fund growth
• Timely retirement of par and maturity obligations

Blockchain & Tokenization

Advantages of Blockchain Integration

• Disintermediation: Replaces traditional custodians, broker-dealers, and clearing systems.
• Immutable Transparency: All fund activity verifiable on-chain via cryptographically secure records.
• Automated Compliance: Smart contracts manage waterfall distributions, coupon/dividend payments, and mandatory calls.
• Institutional-Grade Security: Prospectus/PPM, Term Sheet, and Reliance Letter are embedded into the blockchain for investor due diligence.
• US Treasuries Credit Enhancement: Provide a default backstop to ABS Notes while maintaining non-recourse structure.

Mandatory Call Option

OVO issuances incorporate a mandatory call triggered once sinking funds reach full redemption coverage. By accumulating reserves ahead of maturity, investors benefit from enhanced yield-to-call returns while maintaining the integrity of non-recourse financing.

Funding the Sinking Fund

Sinking funds are financed through dedicated allocations of ABS Note or Share sale proceeds, 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:

• Cover annual dividend or coupon payments
• Accumulate reserves to trigger the mandatory call
• Fully retire ABS Note/Share obligations 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

The sinking fund framework:

• 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: Independent oversight and systematic growth.
• Project Financing Freedom: Non-recourse execution of large-scale projects.
• Technological Efficiency: Blockchain integration for transparency and compliance.
• Credit Protection: US Treasuries provide a default backstop.

Result:

• Investors enjoy secure, predictable returns.
• Asset owners achieve fully funded projects executed efficiently and resiliently.

OVO Services

OVO guides clients from structuring to post-issuance fund management, including:

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

Institutional-grade, next-generation capital solutions for large-scale projects.

Contact us to learn more.