Types Of Municipal Bonds

Question 1

TAXABLE MUNICIPAL BONDS 2 TYPES

Answer 1

1. PRIVATE ACTIVITY BONDS

2. AMT BONDS

Question 2

PRIVATE ACTIVITY BONDS

Answer 2

BONDS THAT ARE NOT USED TO FUND PUBLIC PROJECTS

Question 3

AMT BONDS

Answer 3

SOME PRIVATE ACTIVITY BONDS ARE TAX EXEMPT IF THEY;
FINANCE AIRPORTS, DOCKS, HAZARDOUS WASTE DISPOSAL, WATER AND SEWER AND RESIDENTIAL PROPERTY

STILL SUBJECT TO THE ALTERNATIVE MINIMUM TAX “AMT”

Question 4

VARIABLE RATE SECURITIES

Answer 4

Long-term bonds having interest rates that are reset on a short-term basis.
INCLUDING;
AUCTION RATE SECURITIES
FLOATERS

Question 5

AUCTION RATE SECURITIES

Answer 5

Type of variable rate security his rate is reset by Dutch auction.

Subject to failed auction not enough bidders

SUBJECT TO LIQUIDITY RISK

Question 6

FLOATERS

Answer 6

Bonds whose interest rates are reset periodically at some fixed spread above the selected index.

The spread might be 2% above the index, WHICH REMAINS FIXED THROUGHOUT THE TERM OF THE BOND.

Question 7

VARIABLE RATE DEMAND OBLIGATIONS (VRDOs)

Answer 7

Floating rate obligations that have a nominal long-term maturity, but whose interest rates are automatically reset either on a daily,weekly, or monthly basis.

THESE CONTAIN A PUT OPTION, which gives investors the right to put the security back to the issue were at a price equal to the bonds face value plus accrued interest.

Question 8

REVENUE BONDS

Answer 8

Municipal bonds that finance projects for which principal and interest payments are paid from the revenue generated by those projects.

USERS OF THE FACILITY PAY FOR THE DEBT SERVICE

EXAMPLE = TOLL ROADS, AIRPORTS, HOSPITALS

ALSO CALLED SECURED BONDS

MORE RISKY THAN “GO” BONDS

Question 9

TYPES OF SPECIAL REVENUE BONDS 2 TYPES

Answer 9

SPECIAL TAX BONDS- FUNDED BY A SPECIAL TAX
(NOT PROPERTY OR SALES TAX)
EXAMPLE- GAS TAX OR CIGARETTE TAX

SPECIAL ASSESSMENT BONDS- BACKED BY AD VALOREM TAXES ASSESSED ONLY ON THOSE WHO DIRECTLY BENEFIT FROM THE FACILITY

Question 10

GENERAL OBLIGATION BONDS (GO)

Answer 10

BONDS for which the municipality IS legally obligated to pay the principal and interest

BACKED BY FULL FAITH AND CREDIT OF THE MUNICIPALITY

UNSECURED BUT CONSIDERED SAFE B/C THE MUNI MUST USE ITS TAXING AUTHORITY TO PAY INTEREST ON THE BONDS

DO NOT REQUIRE VOTER APPROVAL

Question 11

MORAL OBLIGATION BONDS

Answer 11

State issued revenue bond

If revenues are not sufficient, the state legislature has the authority and the moral obligation to back the bonds if the issue were fails

DO NOT REQUIRE VOTER APPROVAL

Question 12

SHORT TERM MUNICIPAL SECURITIES 2 TYPES

Answer 12

MUNICIPAL NOTES

TAX-EXEMPT COMMERCIAL PAPER

Question 13

MUNICIPAL NOTES

Answer 13

Short term securities that are issued in anticipation of an expected source of income.

ALLOW A PROJECT TO GET UNDERWAY BEFORE ITS FUNDING HAS BEEN RECEIVED.

USUALLY USED IN INTERIM FUNDS

EXAMPLES;
TANS-TAX ANTICIPATION NOTES
RANS-REVENUE ANTICIPATION NOTES
TRANS-TAX AND REVENUE ANTICIPATION NOTES
BANS-BOND ANTICIPATION NOTES

Question 14

TAX-EXEMPT COMMERCIAL PAPER

Answer 14

Short term promissory note issued by states and municipalities, usually backed by a line of credit with a bank

MATURITY RANGES BETWEEN 1-270 DAYS

ISSUED AT A DISCOUNT TO PAR

Question 15

TAX- EXEMPT COMMERCIAL PAPER HAS TWO ADVANTAGES OVER ANTICIPATION NOTES

Answer 15

1. Permits municipalities to raise funds over the long term without bearing the cost for repeatedly re-issuing notes
2. Issuers have blanket of authorization to re-issue as many units of paper as necessary, will notes require prior approval from elected officials

Question 16

DOUBLE BARRELED BONDS

Answer 16

BONDS THAT HAVE CHARACTERISTICS OF BOTH GO AND REVENUE

BACKED BY FULL FAITH AND CREDIT OF THE MUNI

GENERATES REVENUE THAT CAN BE USED TO BACK THE BONDS

EXAMPLE- HOSPITALS