Term
| MUNICIPAL SECURITIES, also known as MUNICIPALS and MUNIS, |
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Definition
| are state and local debt issues. Local issues may include those of cities, counties, or other local agencies and authorities: Bond, Notes and Bills |
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Term
| Municipalities issue the following three basic types of securities (listed in order from least risky to most risky): |
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Definition
Municipal notes
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General obligation bonds
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Revenue bonds Remember that all bonds are called FUNDED DEBT |
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Term
| The five different types of municipal notes are:#1 CLN construction loan notes or PN |
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Definition
| Construction Loan Notes (CLNs) or Project Notes (PNs) — issued to start a housing project in a low-income area of a city. These used to be called PNs, but now with longer maturities, they are called CLNs. |
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Term
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Definition
| Tax Anticipation Notes (TANs) — issued in anticipation of incoming taxes |
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Term
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Definition
| Revenue Anticipation Notes (RANs) — Issued in anticipation of revenues from a specific project |
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Term
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Definition
| Bond Anticipation Notes (BANs) — issued in anticipation of the proceeds from a bond issue |
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Term
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Definition
| Grant Anticipation Notes (GANs) — issued in anticipation of receiving money from a grant to the municipality |
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Term
| CLNs, formerly called PNs, are issued for the purchase and construction of property for new, |
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Definition
| low income housing projects |
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Term
low income housing projects
•
When the project is complete, the Public Housing Authority (PHA), a government agency, issues a PHA BOND, |
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Definition
| whose proceeds will be used to pay off the construction loan note/project note. |
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Term
| The rates for CLNs are the lowest rates for debt securities since they are short-term, tax-free, |
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Definition
| and backed by a U.S. government agency. |
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Term
| TAX ANTICIPATION NOTES (TANs) are issued by a local agency of a municipality to generate temporary money |
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Definition
| to finance current expenses until taxes are collected. |
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Term
•
REVENUE ANTICIPATION NOTES (RANs) are issued by municipalities |
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Definition
| anticipating the receipt of future revenues. |
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Term
| BOND ANTICIPATION NOTES (BANs) are issued by a municipality in anticipation of the issuance of |
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Definition
| a bond that has been passed for some project in the community. |
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Term
| GRANT ANTICIPATION NOTES (GANs) |
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Definition
| issued by a municipality for a project that is being funded by a grant. |
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Term
| MIG ratings measure the risk of an issuer defaulting on the payments of interest and principal for a municipal note, such |
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Definition
| TAN, RAN, BAN, or GAN. CLNs or PNs, are not rated since they are backed by the issuance of a government housing bond. |
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Term
| GENERAL OBLIGATION BONDS (GO Bonds) are municipal bonds that are backed by the |
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Definition
| “full faith and credit” of the issuer. |
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Term
| GENERAL OBLIGATION BONDS (GO Bonds) are municipal bonds that are backed by the “full faith and credit” of the issuer. |
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Definition
| Principal and interest payments are paid from the tax revenue generated by the issuing state or municipal entity. |
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Term
| GO bonds have a lower risk of default than do revenue bonds |
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Definition
| therefore, they usually have lower yields and higher ratings than revenue bonds. |
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Term
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Definition
| Taxes imposed to raise money for GO bonds |
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Term
| Property tax amounts are expressed in MILS PER THOUSAND, |
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Definition
| where one mil is equal to 1/10th of one cent (or .001 dollars). |
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Term
| Municipalities can also issue a LIMITED TAX BOND that is only backed by a special tax, |
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Definition
| not the full taxing power of the issuer. |
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Term
| REVENUE BONDS are issued to obtain funds to construct |
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Definition
| bridges, tunnels, streets and infrastructure, rapid transit, harbors, and parks. |
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Term
| Principal and interest for revenue bonds are paid from |
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Definition
| imposed on the users of the facility for which the bond was issued. |
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Term
| A feasibility study is conducted before a revenue bond is issued |
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Definition
| determine whether a project is necessary and whether it can pay for itself |
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Term
| In a specific municipality, a revenue bond is more risky than a GO bond, |
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Definition
| a higher coupon because the only source of payments for principal and interest is the revenues of the facility like Reliant Stadium. |
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Term
| Revenue bonds are classified according to the method by which revenue is generated to pay them off. |
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Definition
| Fees charged for water and sewer usage pay off USER FEE REVENUE BONDS. |
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Term
| Revenue bonds are classified pay off TOLLS AND FEES BONDS |
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Definition
| Fees charged for the usage of highways, toll bridges, airports, and other projects. |
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Term
| SPECIAL TAX BONDS are issued for specific purposes, |
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Definition
| such as building or renewing roads or rapid transit systems. Like Metro Rail for the superbowl |
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Term
| SPECIAL ASSESSMENT BONDS are issued to generate money either to purchase specific property or to construct facilities |
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Definition
| Like the land to build the Astrodome. |
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Term
| INDUSTRIAL DEVELOPMENT BONDS (IDBs) or INDUSTRIAL DEVELOPMENT REVENUE BONDS (IDRs) |
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Definition
| issued by a municipality for a corporation for financing construction of such projects as pollution control facilities, industrial parks, sports stadiums, airports, or educational facilities. |
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Term
| A double-barreled bond is both a revenue bond and a general obligation bond. |
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Definition
A)The bond’s interest and principal payments are first paid by the revenues generated by the users of the facility,
B)and if those revenues are insufficient, the bond is subsequently secured by property taxes. |
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Term
| MORAL OBLIGATION BONDS are paid from revenues of a facility, |
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Definition
| If there are not enough revenues from the facility to pay the debt service, the local council (or state legislature) can make an annual appropriation to have the debt service covered. |
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Term
| Build America Bonds, also known as BABs, are issued by municipalities. However, the interest paid is subsidized by the U.S. government. |
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Definition
•
The greatest risk is liquidity, since there is not a large secondary market for them.
•
The long maturities pose yet another risk — the solvency of the municipality that is issuing the bonds.
•
The interest on the bonds is subject to Federal income tax.
•
The money being raised by the issuers is for capital expenditures such as upgrading buildings, highways, and other infrastructures. |
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Term
| Be familiar with the following three descriptions of bonds: |
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Definition
| SERIES BONDS are issued at different times, either at different dates within one year or different dates over a period of years. |
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Term
| Be familiar with the following three descriptions of bonds: |
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Definition
| SERIES BONDS are issued at different times, either at different dates within one year or different dates over a period of years. |
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Term
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Definition
| It is also important to note that since a serial bond has an amount of principal mature each year, the interest cost to the issuer decreases each year |
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Term
| TERM BONDS, issued by corporations and municipalities, |
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Definition
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Term
| REFUNDING THE BOND is when one bond is issued to pay off another bond, |
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Definition
commonly referred to as refinancing.
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It is called refunding the bond because the municipality has funded the debt over again, or “refunded” its debt.
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This is done only if the issuer can reduce its interest cost. |
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Term
| PUT BONDS can be redeemed prior to maturity |
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Definition
| prior to maturity without being called by the issuer. |
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Term
Be familiar with the three forms of ownership for municipal bonds for the exam:
Module 5: Municipal Securities FINRA Series 7
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Bearer
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Fully registered
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Book-entry
•
All three forms of ownership |
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Definition
| All three forms of ownership for municipal bonds are issued in increments of $5,000, although the minimum denomination is $1,000. |
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Term
| BEARER BONDS (also known as COUPON BONDS) |
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Definition
are owned by the person who holds (or bears) them.
•
Owners of bearer bonds do not have their names registered on the books of the issuer. |
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Term
| With REGISTERED BONDS, the owner is registered with the issuer. |
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Definition
| All interest payments are sent to the person whose name is registered with the company. |
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Term
| BOOK-ENTRY BONDS are bonds whose ownership is registered in electronic form by the issuer |
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Definition
| more often, by the trustee on behalf of the issuer |
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Term
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Definition
| large document outlining of all the requirements of the issuing municipality. |
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Term
| Part of the indenture can be found in the official statement |
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Definition
| but it is usually a separate document held by the trustee. |
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Term
| The indenture outlines all the important features of the bond |
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Definition
maturity dates, interest rates, name of the trustee and trustee bank, and all protective covenants.
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The indenture does not have the RE-OFFERING YIELDS. |
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Term
| Protective covenants are set forth in the indenture. |
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Definition
| PROTECTIVE COVENANTS are agreements made between the issuer and the purchaser of a revenue bond. |
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Term
| A RATE COVENANT ensures that the issuer |
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Definition
| will keep rates high enough to meet operation and maintenance expenses as well as debt service. |
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Term
| is a promise by the issuer to maintain the facility in good working order and to keep it in good repair so as to maintain revenues. |
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Definition
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Term
| .The REVENUE FUND is the fund into which all revenues must first be |
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Definition
| all revenues must first be deposited at the time they are received by the issuer. |
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Term
| If the fund contains a NET REVENUES PLEDGE |
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Definition
| payments made from the revenue fund must first be used to meet the ongoing expenses of the project. (These payments are made to the operation and maintenance fund.) |
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Term
| If the fund contains a GROSS REVENUES PLEDGE |
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Definition
| payments made from the revenue fund must first be used to pay the principal and interest (debt service) on the bond. (These payments are made to the debt service fund.) |
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Term
| A SINKING FUND is a fund that must be set up for term bonds only: |
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Definition
| and is money the issuer must regularly set aside for eventually redeeming its bonds, as specified in the indenture. |
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Term
| SINKING FUND CALL: The money in the sinking fund is used by the municipality to buy its own bonds in the open market if they are at a discount, or to pay off bonds that are called. |
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Definition
| SINKING FUND CALL:If part of the bond issue is called AND PAID by this sinking fund, it is known as a SINKING FUND CALL. |
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Term
| Term bonds usually have a sinking fund since the whole bond comes due |
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Definition
| at one time and provides money for the issuer at that time. |
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Term
| Serial bonds do not need a sinking fund since part of the issue |
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Definition
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Term
| Before a revenue bond may be issued, a research analyst is hired to perform |
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Definition
| A)FEASIBILITY STUDY and engineers are hired to draw plans and produce ENGINEERING REPORTS for the project. |
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Term
| A feasibility study and an engineering report are always required on a proposed facility |
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Definition
| that is being financed by a revenue bond. |
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Term
| Prior to a municipal bond being issued, a municipality must obtain a |
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Definition
| LEGAL OPINION from a BOND COUNSEL. |
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Term
| The legal opinion by the bond counsel, states that the bond is a municipal bond as determined by existing local and tax laws |
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Definition
| And that the interest is exempt from federal and state (if applicable) taxes. |
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Term
In making its opinion, the bond counsel:
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Researches the state and local laws to check into the requirements for a bond to have tax-exempt status |
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Definition
May assist in getting favorable legislation passed in the locality, if necessary
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Supplies information to the underwriters for the official statement |
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Term
| BOND RATINGS are a measure of the chance of default of interest and principal by the issuer. The three major bond-rating organizations are: |
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Definition
Standard and Poor (S&P)
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Moody’s
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Fitch Investor’s Service |
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Term
These agencies rate:
The Moody’s bitch is Standard and Poor (S&P)and a Fitch |
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Definition
| General obligation bonds and some revenue bonds that are backed by property taxes |
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Term
| If a bond is REFUNDED or PRE-REFUNDED (or ADVANCE-REFUNDED |
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Definition
| the ratings by both S&P and Moody’s go up to AAA and Aaa, respectively. |
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Term
| A bank-qualified bond is a municipal bond |
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Definition
| purchased by a bank that allows the bank to deduct 80% of the carrying costs it paid to purchase and hold the bonds. |
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Term
| The MUNCIPAL SECURITIES RULEMAKING (MSRB) regulates |
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Definition
| the actions of underwriters, broker/dealers, and the people who sell municipal bonds. |
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Term
| A NOTICE OF SALE is an advertisement by a municipality to prospective underwriters |
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Definition
| the municipality requests that bids be submitted on the cost of underwriting a new issue.only used in connection with a competitive underwriting. |
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Term
| A TOMBSTONE ADVERTISEMENT is an advertisement by the underwriters |
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Definition
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Term
| The two methods of underwriting municipal securities |
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Definition
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Term
| the issuer advertises for underwriters to submit bids on the cost of underwriting the issue: |
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Definition
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Term
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Definition
| the issuer asks a broker/dealer with which the issuer has an established working relationship to submit a cost estimate for underwriting the issue. |
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Term
| All municipal bonds come with an OFFICIAL STATEMENT. |
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Definition
| OFFICIAL STATEMENT discloses all the important aspects includes any call features,the issuer, and the protections for the buyer. |
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Term
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Definition
| Any issue being sold for the second time or more is considered a SECONDARY ISSUE |
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Term
| BOND TRADERS are broker/dealers who buy the bonds from investors |
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Definition
| wanting to sell and then resell them to investors wanting to buy. |
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Term
| For information about new or secondary municipal bond issues, a broker/dealer or a municipal bond dealer can consult |
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Definition
| The BOND BUYER is a publication that is now produced online for underwriters only. |
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Term
| There are three general obligation indexes: |
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Definition
The GO 11 index has an average rating of AA.
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The GO 20 index has an average rating of A+ (A1).
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The GO 40 index has an average rating of BBB. |
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Term
| The Munifact Wire is run by the Bond Buyer and provides a great deal of information regarding new issues of municipal bonds in both the primary and the secondary markets. |
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Definition
| It gives information about the issuer, the indenture, and any information for analyzing the ratings and quality of the issues. There are no prices or yields. |
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Term
| The MUNIFACT WIRE is a wire service for |
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Definition
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Term
| The KENNY WIRE and the C-WIRE |
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Definition
| are wire services for secondary trading. |
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Term
| trading between BOND TRADERS |
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Definition
|
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Term
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Definition
| Are market makers and make a variety of bonds available to investors and other traders |
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Term
| If a bond trader needs a bond: He can seek a |
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Definition
| Brokers broker to act as an agent to find that bond. |
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Term
| A firm that is a broker’s broker only acts in an assistant role called an AGENCY BASIS. A broker’s broker: |
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Definition
A broker’s broker:
N
ever acts as a market maker
•
H
elps dealers find a particular bond they are looking for •
H
elps institutional firms buy and sell bonds |
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Term
A broker’s broker:
N
ever acts as a market maker
•
H
elps dealers find a particular bond they are looking for •
H
elps institutional firms buy and sell bonds |
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Definition
Brokers Broker: Helps large buyers and/or sellers remain anonymous •
I
n general, acts in a broker capacity ••
N
ever acts in a principal transaction even when buying bonds to help municipal firms fill an institution’s order |
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Term
| Municipal bonds are quoted in basis points, also known as BiPs. |
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Definition
| A quote in basis points is in yield to maturity basis. When making a quote for a municipal bond, each basis point is equal to 1/100 of 1%, or .0001. |
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Term
T
hus, a bond quoted at a 7.85 basis is actually selling on a 7.85% yield to maturity.
A
rise of three basis points (3 BiPs) raises this quote to 7.88%. |
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Definition
A
rise of 12 BiPs raises the original quote to 7.97%. •
A
rise of 113 BiPs raises the original quote to 8.98%. |
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Term
| When a bond is quoted in basis points, the only way to find the dollar amount is to use a BASIS BOOK or calculate it on a bond calculator. |
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Definition
| the only way to change a basis to dollars for the bond, or to change the value in dollars for a bond to basis is to use a BASIS BOOK. |
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Term
W
hen a bond sells at its FACE VALUE, it is SELLING AT PAR or selling at 100. |
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Definition
| The basis quote is equal to the nominal yield. |
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Term
It will be quoted at the “yield to call.”
Bonds priced ABOVE FACE VALUE, it is being priced at a PREMIUM or selling above 100 BIPS |
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Definition
| The basis quote is less than the nominal yield. It will be quoted at the “yield to call.” |
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Term
| When a bond is priced BELOW FACE VALUE, |
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Definition
| It will be quoted at the “yield to maturity.” |
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Term
| When a bond is priced ABOVE FACE VALUE, |
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Definition
| It will be quoted at the “yield to call.” |
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Term
| When a bond is priced BELOW FACE VALUE, it is being priced at a DISCOUNT or selling below 100. |
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Definition
| The basis quote is greater than the nominal yield. |
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Term
| the price of all premium bonds must take into account the possibility of in-whole calls, |
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Definition
| and if the bond is callable at par, the broker must quote the yield to call. |
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Term
| the price of all premium bonds must take into account the possibility of in-whole calls, |
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Definition
| and if the bond is callable at par, the broker must quote the yield to call. |
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Term
| A FIRM QUOTE is a quote given by dealers when they are ready or able to do business at a specified price. |
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Definition
| Dealers can place a restriction of time on the quote (e.g., 10 minutes, or firm for one hour with five-minute recall). This recall allows dealers to recall the bid during the hour. When dealers call the traders back, the traders must make an immediate decision. |
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Term
| SUBJECT QUOTES are given for informational purposes only.on any type of bond — general obligation or revenue |
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Definition
| A subject quote is given when the dealer is not committed to doing business at that price, but rather is simply informing the potential investor of the general price range of the bond. |
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Term
All bonds have three yields:
NOMINAL YIELD (also known as the COUPON RATE)
•
CURRENT YIELD •
YIELD TO MATURITY |
|
Definition
A
YIELD is defined as the amount of money returned to the investors from their investment. |
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Term
| The NOMINAL YIELD is also known as the COUPON or the RATE. This is the fixed amount of interest that is paid every year. |
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Definition
The CURRENT YIELD is the yield based on the amount of income the investor is receiving in relationship to the current market price. To refresh your memory, the formula is:
CURRENT YIELD = ANNUAL INTEREST AMOUNT (NOMINAL YIELD)
CURRENT MARKET PRICE |
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Term
| The CURRENT YIELD is the yield based on the amount of income the investor is receiving in relationship to the current market price. To refresh your memory, |
|
Definition
the formula is:
CURRENT YIELD = ANNUAL INTEREST AMOUNT (NOMINAL YIELD)
CURRENT MARKET PRICE |
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Term
| Yield to maturity is also called BASIS. |
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Definition
| the yield to maturity is a yield that also takes into account the discount or premium spread out over the years to maturity. |
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Term
For the test, be aware that: •
The yield to maturity and the current yield |
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Definition
| are more than the nominal yield for discount bonds. |
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Term
| The yield to maturity and the current yield are less |
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Definition
| than the nominal yield for premium bonds. |
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Term
|
Definition
| The normal yield curve has lower interest rates in the early maturities and higher interest rates in the later years. |
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Term
|
Definition
| The inverted yield curve has higher interest rates in the early maturities and lower interest rates in the later years. |
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Term
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Definition
| The flat yield curve has all of the maturities equal, or with very little increase of not more than .2% |
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Term
| Remember, when presented with a sample of bonds with different maturities and asked which will change the most in price, |
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Definition
| always pick the longest bond. |
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Term
| Regarding the changing yields, remember when a bond sells at par, |
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Definition
| the nominal yield, current yield, and the yield to maturity are equal. |
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Term
If you are asked to rank bonds in their order of yield when the bonds are not
42 COPYRIGHT © FIRE SOLUTIONS, INC. ALL RIGHTS RESERVED. NO REPRODUCTION WITHOUT AUTHORIZATION.
FINRA Series 7 Module 5: Municipal Securities
selling at par, always begin with the nominal yield. |
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Definition
| The nominal yield is lowest for bonds selling at a discount and highest for bonds selling at a premium. |
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Term
| Remember, when presented with a sample of bonds with different maturities and asked which will change the most in price, |
|
Definition
| always pick the longest bond. |
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Term
| Regarding the changing yields, remember when a bond sells at par, |
|
Definition
| the nominal yield, current yield, and the yield to maturity are equal. |
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Term
| If you are asked to rank bonds in their order of yield when the bonds are not selling at par, |
|
Definition
always begin with the nominal yield.
−
The nominal yield is lowest for bonds selling at a discount and highest for bonds selling at a premium |
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|
Term
Teter Totter:
As interest rates go up, bond prices go down.
As interest rates go down, bond prices go up. |
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Definition
| This is known as the inverse relationship of bond price and bond yields. |
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Term
| Bonds that sell at par value have the yield to maturity, current yield, |
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Definition
| and nominal yield equal to each other. |
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Term
| When an issuer fails to make an interest payment, the bonds are considered to be in DEFAULT |
|
Definition
and trade without accrued interest.
•
B
onds trading without accrued interest are said to be trading FLAT. |
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Term
| When buying municipal bonds in the secondary market, the buyer must pay the seller the amount of ACCRUED INTEREST that is due on a bond since the last interest payment was made. |
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Definition
| Municipal bonds pay interest based on a 30-day month and a 360-day year. |
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Term
| The buyer pays the accrued interest from the previous interest payment date to, but not including, the settlement date. You must remember, however, that municipal bonds settle three business days after the trade date. |
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Definition
| SETTLEMENT DATE - LAST INTEREST PAYMENT DATE = NUMBER OF MONTHS AND DAYS |
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Term
| SETTLEMENT DATE - LAST INTEREST PAYMENT DATE = NUMBER OF MONTHS AND DAYS |
|
Definition
Trade date 6/20
3 days for settlement (no weekend)
Settlement date 6/23
Last interest date - 2/1 |
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Term
| There are many types of bond calls, depending on the event. In some cases, the bonds are callable at a premium that reduces down to par after a period of time (usually five years), |
|
Definition
| while in other cases, the bonds are only callable at par. |
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Term
|
Definition
| usually callable in the first years at a premium that reduces to par after three to five years — initiated when refunding or advance refunding has occurred |
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Term
P
ARTIAL CALL — usually callable in the first years at a premium that reduces to par after three to five years |
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Definition
| initiated when the issuer has extra money due to more revenues than expected |
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Term
D
EFEASED CALL — usually callable in the first years at a premium that reduces to par after three to five years |
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Definition
| initiated when advance refunding has occurred, but the issuer prefers to keep the money in U.S. government bonds that are paying the issuer more interest than the municipality is paying the bond holders |
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Term
| SINKING FUND CALL — usually callable in the first years at a premium that reduces to par after three to five years |
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Definition
| initiated in term bonds when the issuer has extra money due to more revenues than expected or in serial bonds that have a term-maturity as well |
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Term
| EXTRA-ORDINARY CALL:always callable at par |
|
Definition
| initiated when there is leftover money from the bond issue and the project is completed |
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Term
| initiated when the project blows up, collapses, or is destroyed by an earthquake or other natural disaster |
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Definition
| CATASTROPHE CALL — always callable at par |
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Term
|
Definition
| Refunding occurs when a municipality issues a new bond for the sole purpose of using the proceeds to pay off the amount of an outstanding bond it wants to refund. |
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Term
| To be able to do this, the outstanding bond must be callable. |
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Definition
| The issuer usually pays a premium for the privilege to call these bonds early. |
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Term
| Refunding Call:IN-WHOLE CALL: |
|
Definition
| Any new issue that is used to refund the existing issue must be in an amount sufficient to cover the outstanding issue, plus any other costs. |
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Term
| REFUNDING and PRE-REFUNDING allow issuers to call in bonds on which they are paying high interest rates and reissue them with lower interest rates — an obvious benefit to issuers. This is also done to reduce the amount of the outstanding bonds completely. |
|
Definition
| Refunding early can improve the credit rating for the issue. The rating of the refunded issue improves with both Standard and Poor’s and Moody’s rating services. Pre-refunding always improves the marketability of a bond. |
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Term
| PRE-REFUNDING occurs when a municipality issues new bonds for the sole purpose of refunding outstanding bonds, when the outstanding bonds are not yet callable at the time the new bonds are issued. |
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Definition
| The proceeds from any new bond issued for refunding must be put into government securities, with maturities coinciding with the callable date of the existing bond. These securities must be kept in an escrow account. |
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Term
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Definition
| The interest that is generated from the government securities must be enough to cover the debt service of the new bonds. |
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Term
A municipality has pre-refunded its $30 million outstanding bond. The old bonds will not be called for 3 1/2 years. What can the municipality do with the proceeds from the refunding issue?
FIRE Drill
(A)
Put the money in the bank.
(B)
Invest in other municipal bonds.
(C)
Invest in derivative products to generate greater income.
(D)
Invest in government bonds. |
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Definition
| (D) Invest in government bonds. This is all the municipality is allowed to do. |
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Term
| If issuers wish to call a bond, they must give NOTICE OF REDEMPTION at least 30 days in advance |
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Definition
30 days in advance and must publish the intent to call the bonds in a national financial publication (e.g., The Wall Street Journal). The process for calling a bond is outlined in its indenture.
T
erm bonds are called on a random selection basis. |
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Term
S
erial bonds are called in inverse chronological order of maturity (oldest ones first). |
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Definition
| However, if only a portion of a year’s issue is called, the bonds in that year are called on a random basis. |
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Term
| If a bond has been called, |
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Definition
| it will be listed in the Bond Buyer, and broker/dealers have an obligation to tell their clients of the call. |
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Term
| The issue of OVERLAPPING DEBT is an important aspect that should be considered in analyzing a general obligation municipal issue, but not a revenue municipal issue. |
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Definition
O
VERLAPPING DEBT is a general obligation bond indebtedness |
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Term
O
VERLAPPING DEBT is a general obligation bond indebtedness |
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Definition
| that is shared by two taxing entities and benefits both areas. |
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Term
| When there is no overlapping debt, the per capita debt is known as the NET DIRECT DEBT. In computing net direct debt or direct debt, use the following formula: |
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Definition
NET DIRECT DEBT = OLD DEBT + NEWLY PROPOSED DEBT
CITY POPULATION |
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Term
| When there is overlapping debt, the per capita debt is known as NET DEBT. In computing net debt, use the following formula: |
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Definition
NET DEBT = OLD DEBT + OVERLAPPING DEBT + NEWLY PROPOSED DEBT
CITY POPULATION |
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Term
Co-Terminus Debt Service
When two or more municipal entities have the same boundaries, they are said to be co-terminus taxing entities. All their debt is overlapping. |
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Definition
Example:
The City and County of San Francisco — city, county, school district, water district, and sewer district all have the same boundary. |
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Term
| The first step in analyzing any revenue bond is to look at the FLOW OF FUNDS as outlined in the BOND INDENTURE, |
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Definition
| BOND INDENTURE, a copy of which is found in the official statement. This explains how the money will be spent and how solvent the issuer is. |
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Term
| The revenues pledge indicates how the interest on the bonds will be paid |
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Definition
| The second step is to look at the other COVENANTS in the indenture. The most important are: |
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Term
| The second step is to look at the other COVENANTS in the indenture. The most important are: |
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Definition
Rate covenants
••
I
nsurance covenants, which provide for insurance on the project
Maintenance covenants |
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Term
| an analysis of revenue bonds should include any or all of the following: |
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Definition
Feasibility studies and a competitive analysis •
Engineering studies |
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Term
Which of the following is the method of finding the net debt of a municipality?
FIRE Drill
(A)
Municipal debt ÷ City population
(B)
(Municipal debt + overlapping debt) ÷ City population
(C)
Municipal debt ÷ County population
(D)
(Municipal debt + overlapping debt) ÷ County population |
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Definition
| (B) (Municipal debt + overlapping debt) ÷ City population. The question asked for net debt |
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Term
| DEBT SERVICE is the amount of principal and interest that must be paid each year. |
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Definition
| If the bond is a term bond, the debt service is the same until the maturity date. |
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Term
| If the bond is a serial bond, the debt service is composed of both principal and interest, and can change each year or remain the same. |
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Definition
| LEVEL DEBT SERVICE is when the total payment of principal and interest stays the same |
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