Munis

Question 1

Muni Notes

Answer 1

Short term financing
Ratings: S&P: SP1, SP2, SP3 (speculative grade)
Moodys: MIG 1, MIG 2, MIG 3, SG (speculative grade)
Managing Cash flows:
TAN (Tax Anticipation Note)
RAN (Revenue Anticipation Note)
BAN (Bond Anticipation Note)
GAN (Grant Anticipation Note)

Question 2

Variable Rate Demand Oblications

Answer 2

Variable rate of interest adjusted at specified intervals. Holders can redeem for par plus accrued at any time that rates are reset.

Question 3

Auction Rate Securities

Answer 3

Long term bonds (muni or corp) with variable i that is periodically set thru Dutch Auction. Sets lowest i at which securities offered for sale will clear the market (“net clearing rate”). I reset range from 7, 28, 35 days. Investor must decide to keep sell before auction. If Dutch doesn’t clear market, investor must hold security.

Question 4

Taxable Equivalent Yield Formula

Answer 4

Tax Free Yield / (100% - Tax Bracket %)

Question 5

Net Yield Formula

Answer 5

Taxable Yield * (100% - Tax Bracket %)

Question 6

Muni OIDs

Answer 6

Basis is accreted at rate that brings up to par at maturity. If held to maturity: no cap gain/loss. If sold prior: gain / loss on ADJUSTED basis, gain on sale is reported at accreted amt. Remember to accrete/amortize from fv to par at constant yearly amt.

Question 7

100m

Answer 7

Means $1,000

Question 8

EMMA

Answer 8

Electronic Municipal Market Access. Equivalent of EDGAR.

Question 9

Muni Notice of Sale: Negotiated Sale

Answer 9

Issuer appoints underwriter. Both issuer and underwriter negotiate terms of deal. Usually for revenue bonds. Bid is submitted in terms of yield.

Question 10

Muni Notice of Sale: Competitive Sale

Answer 10

Notice published in Bond Buyer. Issuer invites underwriters to submit sealed bids. Usually for GO bonds.

Question 11

Eastern Account

Answer 11

Undivided syndicate. Each member takes same percentage as original allocation of unsold bonds.

Question 12

Western Account.

Answer 12

Divided syndicate. (Wild West) Members only responsible for individual allocation.

Question 13

Components of spread in a syndicate for munis

Answer 13

Manager fee: 1/4 point per bond. Syndicate member (additional takedown): 3/4 point per bond sold. Selling group concession: 1/2 point for each bond sold (then syndicate member becomes 1/4pt). Total takedown: 3/4 point

Question 14

Bond Buyer

Answer 14

New Issue info, quotes avg YTM. 3 indexes:
20 Bond: - 20 GOs w 20 yr maturities
- avg rating AA or Aa2
11 Bond: - 11 of the above 20
- avg rating of AA+ or AA1
25 Revenue: - 25 revenues w 30 yr maturities
- Avg rating A+ or A1

Question 15

Bond Buyer: Visible Supply

Answer 15

Total par value of negotiated and competitive issues expected to reach mkt within next 30 days
Compiled DAILY

Question 16

Bond Buyer: Placement Ratio

Answer 16

Par value sold (placed) vs. total par value available for sale
Compiled WEEKLY

Question 17

MSRB

Answer 17

No enforcement power, enforced by agencies but NOT exchanges (bc they dont deal munis)

Question 18

B/D who has board seat on issuer’s board

Answer 18

Can trade issuer’s bond for/with customer but must:
Disclose relationship at least orally before trade
Disclose relationship in writing at or prior to settlement
If for discretionary account, obtain customers specific WRITTEN permission

Question 19

Muni Principal

Answer 19

Must review and approve in writing:
-all new accounts
-all muni transactions
-all muni correspondence
-summaries/abstracts of Official Statements
-all complaints (FINRA: hold 4 yrs, MSRB: 6 yrs)
+complaints must be written and signed by customer, investor brochure delivered to customer
all other record keeping: 3 yrs

Question 20

Political contributions by muni fin professionals

Answer 20

Only $250 per election per candidate and only for candidates for whom he may vote
If violated, 2 yr ban on underwriting business w issuer (cmpetitive deals not prohibited)

Question 21

bank-qualified municipal bonds

Answer 21

Bank-qualified bonds are issued by small municipalities and, to qualify, a municipality may only issue up to $10,000,000 annually. This is done to encourage commercial banks to invest in locally issued municipal securities. Commercial banks that purchase this type of security are permitted to deduct 80% of the interest cost paid to depositors on the funds used to purchase the bonds.

Question 22

Bond Buyer Muni Index

Answer 22

The Bond Buyer Municipal Bond Index represents the average of the prices of 40 long-term municipal bonds adjusted to a yield of 6%.