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Series 52 Group Share > FC CH 2 > Flashcards

FC CH 2 Flashcards

1
Q

What types of bonds may a speculative investor seek?

A

Lower rated or junk bonds

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2
Q

The U.S. Treasury reimburses the _______ for a portion of the interest paid on BABs.

A

The U.S. Treasury reimburses the issuer for a portion of the interest paid on BABs.

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3
Q

Assuming a net revenue pledge bond, what is the first priority according to the flow of funds?

A

Operating and Maintenance Fund

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4
Q

What are Auction Rate Securities (ARS)?

A

Long-term bonds (municipal or corporate) with a variable interest rate set periodically through a Dutch Auction

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5
Q

True or False: Municipal bonds are exempt from all aspects of the Securities Act of 1933.

A

False. Municipal bonds remain subject to the anti-fraud provisions of the Act.

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6
Q

What types of bonds are issued to finance water, sewer, and electrical plants?

A

Utility revenue bonds

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7
Q

Local general obligation bonds are backed by what type of tax?

A

Property tax (e.g., school district bonds)

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8
Q

$9 million gross revenue, $3 million oper./maint. expenses, and $2 million debt service. Debt service coverage ratio?

A

($9 million - $3 million) ÷ $2 million = 3:1 coverage.

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9
Q

Bonds that are supported by tolls on bridges and highways are referred to as ______________ bonds.

A

Bonds that are supported by tolls on bridges and highways are referred to as transportation bonds.

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10
Q

What is a lease financing agreement that is issued in the form of a municipal revenue bond considered?

A

A lease financing agreement that is issued in the form of a revenue bond is a certificate of participation (COP).

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11
Q

What is a Tax Anticipation Note (TAN)?

A

Municipal note issued in anticipation of future real estate taxes

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12
Q

Debt that is issued by a municipality is referred to as ______ debt.

A

Debt that is issued by a municipality is referred to as direct debt.

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13
Q

Offering special rates to groups for the use of a revenue facility violates the __________________ covenant.

A

Offering special rates to groups for the use of a revenue facility violates the non-discrimination covenant.

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14
Q

An increase in expenses may result in an increase in user fees under the ____ covenant of the bond indenture.

A

An increase in expenses may result in an increase in user fees under the rate covenant of the bond indenture.

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15
Q

Given a yield change, ____________ bonds move more in price.

A

Given a yield change, long-term bonds move more in price (lower coupon or longer duration are also correct.)

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16
Q

Overlapping debt may also be referred to as ___________ debt.

A

Overlapping debt may also be referred to as coterminous debt.

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17
Q

True or False: A higher the assessed value of an owner’s property, the greater the benefit the owner will receive.

A

True

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18
Q

What is a Bond Anticipation Note (BAN)?

A

Municipal note issued for a capital project that will eventually be paid from the proceeds of a long-term bond

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19
Q

A negative population trend would have the greatest impact on a __________________ bond.

A

A negative population trend would have the greatest impact on a general obligation bond.

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20
Q

Bonds rated ___________ and higher are considered investment grade.

A

Bonds rated BBB (for S&P and Fitch) or Baa (for Moody’s) and higher are considered investment grade.

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21
Q

True or False: A revenue bond is normally subject to debt limitations

A

False

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22
Q

True or False: The interest rate reset periods on Auction Rate Securities range from 7, to 28, or 35 days.

A

True

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23
Q

Standard & Poor’s four ratings for municipal notes are ______, ______, ______, ______.

A

Standard & Poor’s four ratings for municipal notes are SP-1+, SP-1, SP-2, SP-3.

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24
Q

Moody’s and S&P rate the likelihood of an issuer _____________ on the debt service.

A

Moody’s and S&P rate the likelihood of an issuer defaulting on the debt service

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25
Q

If a letter of credit is used as backing for a municipal issue, what information must be disclosed?

A

The name of the bank that issued the letter of credit

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26
Q

True or False: An investor who is interested in income and safety of principal should buy a BB rated muni bond.

A

False. A bond with a BB rating is considered speculative and is inappropriate for a person with an objective of safety.

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27
Q

For a special assessment bond, will the credit rating increase or decrease due to rising property values?

A

Increase. Higher property values lead to more revenue (i.e., taxes) for the issuer.

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28
Q

In a revenue financing, the property being used is protected by the _________ covenant.

A

In a revenue financing, the property being used is protected by the insurance covenant.

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29
Q

Bonds that are issued to raise funds for a 501(c)(3) organization are issued by the _______ issuer.

A

Bonds that are issued to raise funds for a 501©(3) organization are issued by the conduit issuer

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30
Q

Who subsidizes the interest payments on BABs?

A

The U.S. Treasury pays a 35% direct subsidy to the issuer to offset borrowing costs

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31
Q

A bond that is secured by any amount of tax that is necessary to satisfy the commitment is a/an _____________ bond .

A

A bond that is secured by any amount of tax that is necessary to satisfy the commitment is a/an unlimited tax bond .

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32
Q

True or False: The Flow of Funds covenant on a revenue bond describes the priority for distributing project revenue.

A

True

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33
Q

What bond would be issued to build a facility for a private company?

A

Industrial Development Revenue (IDR) bond

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34
Q

A ____________ bond is issued to build a facility that is leased to another user.

A

A lease rental bond is issued to build a facility that is leased to another user.

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35
Q

A bond that is backed by the maximum tax that may be imposed is a ___________ bond .

A

A bond that is backed by the maximum tax that may be imposed is a limited tax bond.

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36
Q

_________ pay for bonds to be rated.

A

Issuers pay for bonds to be rated.

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37
Q

What is a municipal indenture or bond resolution?

A

The contract between the issuer and the bondholders

38
Q

A municipality which fails to properly budget its retirement obligations has ________________ liabilities.

A

A municipality which fails to properly budget its retirement obligations has unfunded pension liabilities.

39
Q

Which bond would most likely require a feasibility study to be issued?

A

Revenue Bond

40
Q

What is another name for property tax?

A

Ad valorem tax

41
Q

If an issuer refinances its bonds at a lower rate, its debt service coverage ratio will ________.

A

If an issuer refinances its bonds at a lower rate, its debt service coverage ratio will increase.

42
Q

Assuming a net revenue pledge bond, what is the second priority according to the flow of funds?

A

Debt Service (with Operating and Maintenance first)

43
Q

What taxes are normally used to support special tax bonds?

A

Taxes on gasoline, alcohol, and tobacco

44
Q

Define parity bond.

A

A parity bond is when two or more issues that have the same lien against pledged revenues.

45
Q

If an issuer refinances its bonds at a lower rate, what is the likely impact to its debt service coverage ratio?

A

If all other details remain unchanged, the debt service coverage ratio will increase.

46
Q

True or False: Revenue bonds may only be issued with voter approval.

A

False

47
Q

True or False: An increase in uncollected taxes is a positive sign of the municipality’s creditworthiness.

A

False

48
Q

How often will VRDOs adjust their interest rate?

A

Specified intervals such as daily, weekly, or monthly. VRDOs may allow owners to put (sell) back to the issuer.

49
Q

MIG stands for ___________________________.

A

MIG stands for Moody’s Investment Grade.

50
Q

True or False: A decrease in Medicaid or Medicare reimbursements is a positive factor for a hospital revenue bond.

A

False. Decreasing Medicare reimbursements will lead to a decrease in a hospital’s revenue.

51
Q

By what types of taxes are state general obligation bonds backed?

A

Income, sales, or gasoline tax, but also licensing fees and fines.

52
Q

Moody’s rates municipal notes using ______, ______, ______, ______.

A

Moody’s rates municipal notes using MIG1, MIG2, MIG3, SG.

53
Q

How is property tax calculated?

A

Assessed value x millage rate

54
Q

How does S&P and Moody’s further differentiate their ratings?

A

S&P uses + or - , while Moody’s uses 1, 2, 3.

55
Q

__________ powers require a law to be passed before a bond may be issued.

A

Statutory powers require a law to be passed before a bond may be issued.

56
Q

What type of indenture allows for additional bonds to be issued that are backed by the same facility?

A

An open-end indenture

57
Q

How does the Dutch Auction set the interest rate on Auction Rate Securities?

A

It sets the lowest interest rate at which all the securities being offered will clear the market (net clearing rate).

58
Q

For what reasons may an issuer’s debt service coverage ratio increase?

A

If the issuer’s revenue increases, its operating and maintenance expenses decrease, or its debt service decreases

59
Q

True or False: A special tax bond is a type of revenue bond.

A

True

60
Q

What is a Construction Loan Note (CLN)?

A

Municipal note issued to provide funds for construction of housing projects to be repaid by permanent financing

61
Q

What are health care bonds issued to build?

A

Nonprofit hospitals and health care facilities

62
Q

Tolls and user fees are typically used to support ________ bonds.

A

Tolls and user fees are typically used to support revenue bonds.

63
Q

What two sources are used to pay debt service on a double-barreled bond?

A

Revenue dollars and tax dollars

64
Q

What is the benefit to an issuer of municipal bonds?

A

The ability to raise capital by issuing bonds that pay a lower interest rate

65
Q

True or False: Constitutional powers require a law to be passed before bonds may be issued.

A

False

66
Q

What is the highest credit rating?

A

AAA for S&P and Fitch, and Aaa for Moody’s

67
Q

How is the debt service paid on a special assessment bond?

A

It is paid based on the value of the benefit that is received or on the valuation of the property.

68
Q

Bonds rated BB (Ba) or lower are considered _______________________ bonds.

A

Bonds rated BB (Ba) or lower are considered speculative or junk bonds.

69
Q

True or False: A certificate of participation (COP) may be issued without a public vote.

A

True

70
Q

What’s stated in a municipal indenture (bond resolution)?

A

Issuer’s responsibilities, bondholders’ rights, and the different covenants (pledges) made to protect bondholders

71
Q

When is a municipality able to issue a lease rental bond?

A

If it uses the proceeds to purchase computers and uses an annual appropriation to pay the debt service.

72
Q

By what are industrial development bonds backed?

A

The corporation that is leasing the facility

73
Q

Define overlapping debt.

A

Debt of a municipality that is shared with another political entity (e.g., school district debt)

74
Q

A bond supported by charges on only those who benefit from an improvement are referred to as _________________ bonds.

A

A bond supported by charges on only those who benefit from an improvement are referred to as special assessment bonds.

75
Q

BABs pay interest which is _________ to the investor.

A

BABs pay interest which is taxable to the investor.

76
Q

True or False: 501(c)(3) organizations issue bonds.

A

False

77
Q

True or False: An increase in unfunded pension liabilities is a negative sign of the municipality’s creditworthiness.

A

True

78
Q

True or False: An increase in assessed valuation is a positive sign of the municipality’s creditworthiness.

A

True

79
Q

What is not included in net direct debt?

A

Self-supporting debt

80
Q

True or False: The higher the assessed value of an owner’s property, the greater the assessment for the owner.

A

True

81
Q

True or False: A closed-end indenture does not allow additional bonds to be issued that are backed by the same facility.

A

True

82
Q

What is a Grant Anticipation Note (GAN)?

A

Municipal note issued in anticipation of receiving government funding in the form of a grant

83
Q

True or False: If revenue falls short, payments on moral obligation bonds only begin with legislative approval.

A

True

84
Q

Revenue bonds are backed by ___________________ generated by ________________________.

A

Revenue bonds are backed by specific revenue (user fees) generated by a project or facility.

85
Q

In what covenant does the issuer pledge to keep the project in good working order?

A

Maintenance and Operation Covenant

86
Q

Bonds that are secured by the repayment of student loans are referred to as _________ bonds.

A

Bonds that are secured by the repayment of student loans are referred to as education bonds.

87
Q

What is a Revenue Anticipation Note (RAN)?

A

Municipal note that will eventually be paid from future federal or state subsidies

88
Q

What does 1 mill equal?

A

$1.00 per thousand dollars of assessed value (.001 as a decimal)

89
Q

List other names used for a bond indenture.

A

The trust indenture or bond resolution

90
Q

The risk that an issuer may default on its bond issue is referred to as ______ risk.

A

The risk that an issuer may default on its bond issue is referred to as credit risk.

91
Q

True or False: Lease rental bonds may be used to finance the purchase of telecommunications equipment.

A

True. However, the municipality is must be buying the equipment for use by its employees.

Series 52 Group Share (24 decks)

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