Unit 6 Flashcards
A debt security issues by a municipal authority to raise funds for new construction with the understanding that the finished structure will be rented to the authority and the rental payments will finance the bond payments
Lease rental bond
An attorney retained by a municipal issuer to give an opinion concerning the legality and tax exempt status of a municipal issue
Bond counsel
A short term municipal or government debt security to be paid off from future tax receipts
TAN (Tax Anticipation Note)
A municipal security backed by the full faith and credit of the issuing municipality as well as by pledged revenues
Taxed twice
Double barreled bonds
A self regulatory organization that adopts rules with regard to the unique municipal bond market covering professional qualifications, fair practices, uniform practice and market transparency and places administrative burdens on brokers and dealers
Municipal securities rule making board
(MSRB)
An offer from a broker dealer to buy or sell securities
It indicates a willingness to execute a trade under the terms and conditions accompanying the quote
Bona Fide quote
The price at which a municipal securities dealer is willing to purchase securities from another municipal dealer. The price may be revised if market conditions change
Workable indication
A series quotation subject to some condition requiring confirmation by the dealer
Subject quote
Tax equivalent yield calculation
Nominal yield ➗ 1 - fed tax income rate
A municipal issuers proportionate share of the debt of other local governmental units that overlap it geographically, either in whole or in part
Overlapping debt
Tax free municipal equivalent calculation (corporate vs. tax free municipal)
Corporate X (100% - tax bracket)
A short term municipal debt security issues in anticipation of revenue to be received
RAN (revenue anticipation note)
A short term municipal debt security to be paid from the proceeds of long term debt when it is issued
BAN (bond anticipation note)
A term used to describe municipal entities that share the same boundaries.
Ex: a school district and fire district may issue debt separately although the debt is backed by revenues from the same tax payers
Coterminous
The statement of a bond attorney affirming the validity of a new municipal bond issue but expressing reservations about its quality
Qualified legal opinion
The statement of a bond counsel affirming the compliance of a new municipal bond issue with municipal statutes and tax regulations and expressing no reservations about its validity
Unqualified legal opinion
- A municipal securities broker acting as an agent or risk less principal in the purchase or sale of securities for broker dealers, sophisticated municipal securities professionals and institutions when those market participants are seeking liquidity or to adjust an inventory position
- A designated market maker executing orders for a commission house broker or another brokerage firm
- A floor broker on an exchange or a broker dealer in the over the counter market executing a trade as an agent for another broker
Brokers broker
A municipal issue that trades without a written legal opinion of counsel from a bond attorney
Must be designated at time of trade
Ex legal
Municipal revenue bonds that are quoted and traded on a basis of dollars rather than yield to maturity
Ex: term bonds
Dollar bonds
A municipal revenue bond payable only from the proceeds of a tax on certain items rather than ad valorem tax
Special tax bond
A short term municipal debt security issues in anticipation of receiving a funding grant, typically from a government agency.
GAN (grant anticipation note)
Issued by municipalities, non profit hospital, utilities, housing finance agencies and universities.
Long term variable rate bonds tied to short term interest rates
Auction rate securities (ARS)
A municipal debt issue whose interest and principal are payable only from the specific earnings of an income producing public project.
Not subject to statutory debt limits and do not require voter approval
Revenue bonds
A short term municipal debt security that provides interim financing for new projects
Construction loan note (CLN)
A provision of a bonds trust indenture allowing the issuer to use the same collateral backing for a bond as collateral for future bond issues, resulting in new creditors having equal claim with existing creditors
Open end covenant
A date on which interest on a new bond issue begins to accrue- usually the issue date although the bonds may be delivered at a later date
Dated date
An account established by an issuing corporation or municipality into which money is deposited regularly so that the issuer has the funds to redeem its bonds, debentures or preferred stock
Sinking fund
A provision of a municipal revenue bonds trust indenture that helps ensure the safety of the issue by promising to insure the facilities built
Insurance covenant
The flow of funds arrangement in a municipal revenue bond pledging that operating and maintenance expenses will be paid before debt service
Net revenue pledge
A provision of a bonds trust indenture stating that any additional bonds secured by the same assets must have a subordinates claim to those assets
Closed end covenant
A municipal revenue bond funded by assessments only placed on property owners who benefit from the services or improvements provided by the proceeds of the bond issue
Special assessment bond
A provision of a municipal revenue bonds trust indenture that helps ensure the safety of the issue by specifying the rates to charge the user of the facility
Rate covenant
A short term municipal debt security to be paid off from future tax receipts and revenues
TRAN (tax and revenue anticipation note)
Capital gain or loss calculation
Amount received(at sale or maturity) - adjusted basis
A municipal debt issue backed by the full faith and credit and taxing power of the issuer for payment of interest and principal.
Issued by local governments are backed by ad valorem taxes, license fees.
Issued by states are backed by income taxes, license fees and sales taxes
Frequently require voter approval
General obligation bonds (GO Bonds)
Accretion calculation
Discount➗# of years = adjustment per year
Municipal bonds issued with variable or floating rates of interest. These securities offer interest payments tied to the movements of another specified interest rate
Variable rate demand obligation (VRDO)
The flow of funds arrangement in a municipal revenue bond issue pledging that all revenues received will be used for debt service prior to deductions for any costs or expenses
Gross revenue pledge
A debt security issues at a discount from face value. The discount is accreted annually for the purpose of calculating cost basis
Original issue discount bond (OID)
A municipal revenue bond for which a state legislature has the authority but no legal obligation to appropriate money in the event that municipal issuer defaults
Moral obligation bonds
Amortization calculation
Premium ➗ # of years = adjustment per year
An alternative tax computing that adds certain tax preference items back into adjusted gross income. If it is higher than the regular tax liability for the year, the regular tax and the amount by which it exceeds the regular tax are paid
Alternative minimum tax (AMT)
A provision of a municipal revenue bonds trust indenture that helps ensure the safety of the issue by promising to keep the facility and equipment in good working order
Maintenance covenant
An element of income that receives favorable tax treatment. The item must be added to taxable income when computing AMT. includes accelerated depreciation on property, research, and development costs, intangible drilling costs, tax exempt interest on municipal private purpose bonds and certain incentive stock options
Tax preference item
A general obligation municipal debt security issued by a municipality whose taxing power is limited to a specified maximum rate (more risky)
Ex: income tax
Limited Tax GO
The schedule of payments disbursed from the proceeds of a facility financed by a revenue bond.
Determines the order in which the operating expenses, debt service and other expenses are paid
Flow of funds
The redemption of a bond by an issuer owing to disaster.
Ex: a power plant built with proceeds from an issue is destroyed by a hurricane
Catastrophe clause
In general, securities issued by a state local government or development agency used to finance the construction or purchase of industrial, commercial or manufacturing facilities that are to be purchased by or leased to a private user
Industrial development revenue bond (IDB)
Issued by municipalities under the American recovery and reinvestment act of 2009, they make interest payments that are taxable to bond holders.
Some types offer tax credits to the issuer and others offer tax credits to the bond holder
No longer issued by those previously issued are actively traded
Build America bonds (BAB)
