Chapter 6 - Muni Securities Flashcards
What is the doctrine of reciprocal immunity?
Established by a Supreme Court decision in 1895, it states that the level of gov’t can only tax its own issues. As in, Federal gov’t can only tax on Treasury Securities and States can only tax on muni securities (hence why t-bills are exempt from state taxes and muni bonds are exempt from federal taxes)
what are the three different types of bond maturity structures?
Term - entire principal matures at one time (muni might establish a sinking fund to save for this)
Serial - bond matures at different dates set by a schedule
Balloon - part of the bond is paid before maturity date, but the largest portion is paid off at maturity.
Describe General Obligation (GO) bonds
full faith and credit issue backed by property (ad valorem) taxes. Have statutory debt limits that can be removed via public vote
What is coterminous debt?
When two different municipalities tax the same area. Ex - when the city and county tax the same hosuehold
What’s a double-barrel bond?
Revenue bonds that are similar to GO bonds. Primary backed by the facilities earning, but backed-up by ad valorem; Effectivley they have two sources
What’s a revenue bond?
a bond to build a utility that will be paid back by the revenue produced by entity (ie builing a dam)
no statutory debt limits or voter approval; not backed by ad valorem taxes
What is a trust indenture or bond resolution?
It appears on the face of a bond and empowers a trustee to act on behalf of the bondholders. It has several provisions to ensure that the muni can pay the bond back (ie. rate covenant to make sure its rate are enough to pay of expenses & debt; sinking fund - money to pay bond back; etc)
Per the Trust Indenture Act of 1939, it’s not required for Munis but it enhances their marketability.
For a solicited bid Muni underwrite, what does the syndicate have to do to win the bid?
sellt he issue at the lower cost to the Muni; offer the lowest net interest cost to the Muni
What is contained in the official notice of sale?
information a syndicate needs to prepare a bid- including the good faith deposit
What are protective covenants associated with?
they are found int he trust indenture of a revenue bond
