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Unit 2 > Municipal Debt > Flashcards

Municipal Debt Flashcards

1
Q

What are three types of municipal bonds?

A
  1. General obligation bonds
  2. Revenue bonds
  3. Short-term notes
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2
Q

What do general obligation bonds fund?

A

Non-self supporting projects that don’t cause revenue

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3
Q

What do revenue bonds finance?

A

Self-supporting projects

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4
Q

Three examples of revenue bonds?

A
  1. Municipal owned toll roads
  2. Airports
  3. Stadiums
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5
Q

What do short term notes fund?

A

activities that can be paid off in a short period of time

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6
Q

What three types of tax are Corporate bond interest subject to?

A
  1. Federal
  2. State
  3. Local
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7
Q

What two types of tax are municipal bond interest subject to?

A

State and local, exempt from Federal

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8
Q

What one type of tax is US government bond interest subject to?

A

Federal

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9
Q

When is an investor exempt from municipal bond interest tax?

A

If the investor is a resident of the municipality where the bond is.

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10
Q

What bonds are ALWAYS tax free to investors regardless of residence?

A

US territory bonds

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11
Q

What revenue source specifically pays off GO bonds?

A

Property taxes and associated fees, fines or assessments

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12
Q

what title are GO bonds backed by?

A

Full faith, credit, and taxing power of the municipality

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13
Q

What form are GO bonds issued in?

A

Serial form

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14
Q

What is a bond cousel?

A

A group of specialized lawyers that provide legal opinion on bond

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15
Q

What three things do bond counsel provide legal opinion on/

A
  1. validity
  2. Legality
  3. Tax status
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16
Q

What role can the municipal advisor not also act as?

A

Underwriter

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17
Q

What is the underwriter’s primary role in municipal bonds?

A

Sell the bond to investors

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18
Q

Through what method are GO bonds sold?

A

Competitive bidding process

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19
Q

What type commitment do underwriters of GO bonds make?

A

Firm commitment

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20
Q

What type of bond will a municipality issue if costs prevent the public from approving the GO bond?

A

Limited tax bond

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21
Q

What is a limited tax bond?

A

Type of GO bond that only has access to a predetermined amount of taxes

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22
Q

What is the benefit to the public of a limited tax bond?

A

Issuer has no incentive to raise taxes if they face challenges paying off the bond

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23
Q

Why are limited tax bonds more risky?

A

Because the issuer can’t increase taxes if they need more money to pay the bond back

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24
Q

What does the municipal advisor do?

A

Help structure bond issues

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25
Q

Which type - qualified or unqualified - opinions are best from the bond counsel?

A

UnQualified

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26
Q

What 4 things are used to analyze G.O. bonds?

A
  1. economic diversity
  2. population trends
  3. Municipal obligations
  4. Tax collection figures
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27
Q

What type of registration are GO bonds exempt from?

A

SEC Registration

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28
Q

What are three GO bond requirements?

A
  1. sold on a firm commitment
  2. Subject to voter approval
  3. Subject to debt limits
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29
Q

What does the official notice of sale do?

A
  1. notiffies underwriters of a municipal bond sale
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30
Q

Where is the official notice of sale found?

A

In the bond buyer

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31
Q

Which underwriter gets the bond?

A

Cheapest underwriter

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32
Q

7 things official statement discloses for GO bonds?

A
  1. Interest rate
  2. timing of interest payments
  3. length of bond
  4. Specific features of the bond
  5. source of repayment funds
  6. municipality’s finances
  7. legal opinion
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33
Q

What type of bond is a limited tax bond?

A

A GO bond

34
Q

What 3 things require voter approval for Municipal bonds?

A
  1. Raising taxes
  2. Issuance of GO bonds
  3. raising debt limit
35
Q

Are revenue bonds self supporting or non self supporting?

A

Self supporting

36
Q

Why would a limited tax bond be issued by a municipality?

A

When they are unable to raise taxes to pay off bonds

37
Q

What type of bonds require voter approval?

A

Bonds that utilize taxpayer funds

38
Q

What is the consequence of a qualified opinion for a municipal bond issuance?

A

Less marketable security

39
Q

What type of project is generally supported by GO bons?

A

Projects that lack self-sustaining revenue but are essential to the municipality

40
Q

Who prepares the legal opinion for a municipal bond issuance?

A

Bond Counsel

41
Q

What are three things the legal covers?

A
  1. Validity of signatures
  2. Constitutional legality
  3. Tax status of bond
42
Q

What type of projects do municipal revenue bonds support?

A

Projects that make money

43
Q

5 types of projects that use revenue bonds?

A
  1. Toll roads
  2. Airports
  3. Stadiums
  4. City zoos
  5. Contention centers
44
Q

What is a feasibility study?

A

A study required to determine whether a project will be profitable and forecast demand

45
Q

What type of supporting bond is a revenue bond?

A

Self-supporting

46
Q

By what means are the borrowed funds paid off in a revenue bond?

A

With the funds generated by the venture

47
Q

Do revenue bonds require voter approval? Why or why not?

A

No, because they are not paid off with taxpayer funds

48
Q

Who creates the feasibility studies?

A

Independent consultants

49
Q

What is the difference between debt limits with GO and revenue bonds?

A

fGO bonds have debt limits, revenue bonds do not

50
Q

What is one thing revenue bonds cannot be paid of with?

A

Ad volarem tax

51
Q

What are three things municipal revenue bonds can be paid off with?

A
  1. Lease rentals
  2. Profits from the funded project
  3. Special taxes
52
Q

What are two types of long - term municipal debt securities ?

A

GO and revenue bonds

53
Q

What type of bond will a municipality requiring short term funding issue?

A

Notes

54
Q

What is the range in maturity for a note?

A

3 months to 3 years

55
Q

What does an anticipation note allow?

A

For municipalities to borrow money for a short period, spend that money, and use taxes, revenues, or capital money received in the future to pay back borrowed funds

56
Q

What are 5 types of anticipation notes?

A
  1. Tax anticipation notes
  2. revenue anticipation notes
  3. tax and revenue anticipation notes
  4. bond anticipation note
  5. grant anticipation note
57
Q

What do tax anticipation notes allow?

A

Municipality to spend money on a public project and repay borrowed funds with ffuture tax collections

58
Q

What benefit do tax anticipation notes have for the municipality?

A

They can utilize taxes throughout the year

59
Q

What are revenue anticipation notes?

A

Allows municipality to spend money on a revenue-related project

60
Q

What is the main difference between tax anticipation notes and revenue anticipation notes

A

Tax anticipation uses taxes to pay back the bond revenue uses revenue from th eproject

61
Q

What do tax and revenenue (TRANs) bonds allow for?

A

If a municipality wants to spend money on multiple projects but only wants to issue one form of debt

62
Q

When are Bond anticipation notes issued and for what?

A

Issued before a long-term bond issuance to finance smaller preemptive measures related to the project

63
Q

When are grant anticipation notes issed?

A

When a federal grant is expected or awarded

64
Q

What time-scale security are variable rate demand obligations, and what else?

A

Long term, with short-redemption options

65
Q

What does an investor receive along with a variable rate bond?

A

A put option

66
Q

How do VRDNs differ in interest rates from normal bons?

A

Every few weeks the note resets its interest rate to the current market interest rate

67
Q

How are BANs paid off?

A

With money raised by a future bond issuance

68
Q

What -term are variable rate demand notes?

A

Long term but with short-term redemption options

69
Q

What are three things TRANS are issued in anticipation of?

A
  1. taxes other than property taxes
  2. revenues to be collected
  3. ad valorem taxes
70
Q

What are RANs not issued in anticipation of?

A

Ad Valorem taxes

71
Q

What are three things RANs are issued in anticipation of?

A
  1. vehicle registration fees
  2. excise taxes
  3. profits from municipal ventures
72
Q

Are municipal bonds liquid or illiquid?

A

illiquid

73
Q

Why do municipal bonds not trade short?

A

Because of their liquidity risk, noone is trading

74
Q

In what market do municipal bonds trade?

A

OTC

75
Q

In what form are municipal bonds quoted?

A

Yield

76
Q

What type of risk do municipal bonds have?

A

liquidity risk

77
Q

When is a bond trading at a discount?

A

When the bond’s yield to maturity is higher than the coupon

78
Q

Do municipal bonds maintain low or high interest rates and yields?

A

low

79
Q

When should an investor consider a low-yielding municipal bond?

A

If they are in a high tax bracket

80
Q

What type of account are municipal bonds unsuitable for and why?

A

Retirement accounts because retirement accounts already have tax shelter so you should opt for something higher yielding

81
Q

How to find the after-tax return?

A

multiply the yield percentage by 100 minus the tax bracket

82
Q
A

Unit 2 (18 decks)

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