 Personal Finance PowerPoint Presentation, Serial Bond. Prepare to get financially fit by practicing personal finance. Most of this information comes from Investopedia Serial Bond, which you can find online. Take a look at the references, resources, continue your research from there. This by James Chen, updated November 11th, 2021. In prior presentations, we've been taking a look at investment goals, investment strategies, investment tools, keeping them in mind. We're now asking, what is a Serial Bond? A Serial Bond is a bond issued that is structured so that a portion of the outstanding bonds mature at regular intervals until all the bonds have matured. Because the bonds mature gradually over a period of years, these bonds are used to finance projects that provide a consistent income stream for bond repayment. The entire bond issue is sold to the public on the same date, and the maturity dates are stated in the offering documents. Understanding Serial Bonds. If an issuer reduces the dollar amount of bonds outstanding, it reduces the risk that the issuer misses a principal payment or interest payment and defaults on the bond issue. Once again, if an issuer reduces the dollar amount of bonds outstanding, obviously that could lead to a reduction of us defaulting on the bonds, meaning not paying an interest payment or not paying, for example, the maturity of a bond at the end of the term. So while a Serial Bond issue requires the issuer to repay specific bond holders on a stated date, other bond issues are structured with a sinking fund. So a Serial Bond structure is a common strategy for municipal revenue bonds because these bonds, so we got the municipal revenue bonds because these bonds are issued for fee generating projects built by states and cities. So we got the municipal bonds, we got these are types of basically government bonds, state and local types of bonds, and those could be used in order to construct things that could have fee generating projects, and that could be a good basic structure for this kind of Serial Bond construction in order to finance the creation. So assume, for example, that a city builds a sports stadium that is funded with parking fees, stadium, concession, income, and lease income. If the bond issuer believes that the facility can generate income consistently each year, it can structure the bond for Serial Maturity Dates. They got those staggered dates of maturity as the total amount of bonds outstanding decreases, the future risk on the bond issue defaulting also declines. The difference between sinking funds and Serial Issue. So in a sinking fund, the issuer makes periodic payments to the bond issues trustee, and the trustee purchases bonds in the open market and retires the bonds. So in that case, you might have a sinking fund that's gonna be set up so that when the maturities are gonna come up, remember how the bonds are kind of typically structured, you've got the end date, the maturity date where you pay back the principal, it's different than a loan type of structure for our mortgage, where we basically pay back installments of equal payments in essence, which have an interest and principal component to them, bonds. We've got that principal payment at the end, and then we basically, they're paying out the interest in intervals. That means you got that lump sum at the end that you might use kind of a sinking fund strategy so that that can ease the burden at the end of the maturity. So the trustee represents the interests of the bondholders and must use the sinking fund payments to buy bonds and retire them. So if they have the sinking fund, then they're gonna have the payments in order to pay off the bonds at maturity, or they can use the sinking fund to buy back their own bonds from the market before maturity. Instead of retiring bonds according to a specific schedule, the trustee purchases bond from any bondholder who is willing to sell his holdings, both sinking funds and serial bond issues reduce the total dollar amount of bonds outstanding over time. So if you have a serial kind of construction, then you've staggered the dates, and then as time passes, there's gonna be less bonds outstanding, which is gonna lower the risk of default out there. And on the other hand, if you have a sinking fund strategy where you have the termination date set, but then you're using the sinking fund to pay off the debt basically early, those are strategies that can be used. So examples of bond rating companies, standards and pours and Moody's investor service both provide bond ratings that assess the ability of a bond issuer to repay principal and interest payments on time. A bond issue with a sinking fund or a serial maturity has more credit worthiness than a bond issue that matures entirely on one maturity date. So once again, if we're thinking about the rating agencies, obviously when we're issuing the bonds, whoever the issuer is would like to have the rating as solid as possible, because that would mean that they can issue the bonds at less interest, paying less interest on it. So if they can put together strategies to boost up their bond on the ratings, that would be good. So a bond issues with a sinking fund or a serial maturity has a more credit worthiness than a bond issued that matures entirely on one maturity date. That could be good for the credit scores. So if for example, a serial bond for a $10 million stadium bond misses bond interest payments 15 years after the issue date, a certain dollar amount of bonds are already paid off before year 15. Because fewer bonds are outstanding, the issuer may be able to recover financially and pay the interest payments that were missed.