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35 Cards in this Set
- Front
- Back
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Types of Municipal Issues |
1) General Obligation Issues (GOs) 2) Revenue Bonds 3) Municipal Notes 4) SLGS (State and Local Government Securities series) 5) Build America Bonds (BABs) |
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General Obligation Issues (GOs)
aka.. "Full faith and credit issues" |
* Municipal Bonds issues for Capital improvements that benefit the entire community - Typically these projects do not produce revenues > Principal & Interest paid by taxes collected by the municipal issuer |
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Source of Funds for different issuing municipality |
1) States: Income Taxes, License Fees, Sales Tax
2) Towns, cities and counties: Property taxes (ad Valorem), License fees, fines, and all other sources of revenue for the municipality.
3) School, road, and park districts: Property Taxes |
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Statutory Debt Limits
(on Municipalities) |
- The amount of debt that a municipal government may incur can be limited by state or local statutes to protect taxpayers from abuso. *If issuer wishes to go above statutory limits, a public referendum requires (voter approval) * Some states limit property taxes to a certain percentage of the assessed property value. In mills.
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Limited Tax GO |
- A bond secured by a specific tax. (e.g., income tax) * As a result, there is more risk associated with a limited tax GO compared to the full taxing authority of the issuer.
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Coterminous Debt |
- Bonds issued by different municipal authorities that tap the same taxpayer wallets.
- Overlapping debt occurs when two or more are taxing the same property to service their respective debt.
*** Coterminous debt only occurs in property taxing situations. Since states don't generally tax real estate, state debt never overlaps.
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Double Barreled bonds |
- Are Revenue Bonds that have characteristics of GO bonds. * Interest and principal are paid from a specified facilities earnings. * However, are also backed by the taxing power of the state or municipality.
- Rated and Traded as GOs.
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Mills (One Mill) |
- Unit of measure applied to property tax purposes.
- One mill equals $1 per $1,000, or $0.001
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Type of GOs |
- Regular GO (full faith and credit issues)
- Limited Tax GO (Backed by specific tax or taxes)
- Double-Barreled Bonds (mix of GO and Revenue bonds) |
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Revenue Bonds |
- Used to finance any municipal facility that generates sufficient income. - Not subject to statutory debt limits - Do not require voter approval - a particular bond issues may be subject to bond tests before subsequent bond issues with equal liens on he project's revenue may be issued. - Requires a Feasibility Study - Sources of Revenue -Trust Indenture/bond resolution. Not required * Empowers trustee to act on behalf of bondholders * Bond covenants |
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Bond Covenants |
Standard Provisions - Rate Covenant - Maintenance Covenant - Insurance Covenant - Additional bonds tests - Sinking fund - Catastrophe clause - Flow of Funds - Books and Records Covenant - Call features
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Type of Revenue Bonds |
1) Industrial Development Revenue Bonds (IDRs) 2) Lease Rental Bonds 3) Certificates of Participation Bonds. (COPs) 4) Special Tax Bonds 5) Special Assessment (special district) Bonds 6) New Housing Authority Bonds (NHAs) or Public Housing Authority Bodns (PHAs) also called Series 8 Bonds 7) Moral Obligation Bonds |
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1) Industrial Development Revenue Bonds (IDRs) |
- Issued to construct facilities or purchase equipment, which is then leased to a corporation - Municipality uses the lease payments to pay the principal and interest on the bonds. - Ultimate responsibility for the payment is the corporation leasing, so bonds carry Corporations's debt rating. - Technically, interest on nonpublic purpose bonds may be taxable (tax reform act 1986) * may be subject to alternative minimum tax |
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2) Lease Rental Bonds |
- Issued to finance office construction for itself or its state or community. - Lease payments provide backing for bonds |
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3) Certificates of Participation (COPs) |
- Form of leae revenue bond, that permits the investor to participate in a stream of revenue from lease, installment, or loan payments related to the acquisition, construction or specific equipment or facilities by the municipality - COPs are not viewed legally as debt of a municipality because payment is tied to an annual appropriation. |
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4) Special Tax Bonds |
- Bonds secured by one or more designated taxes other than ad valorem (property) taxes. - Not considered self supported debt.
ex.. bonds for a particular issue might be supported by sales, tobacco, fuel taxes. |
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5) Special Assessment Bonds or Special District Bonds |
- Issued to finance the construction of public improvements as such as streets, sidewalksm or sewers. - The issuer assesses a tax only on the property that benefits from the improvement and uses the funds to pay principal and interest. |
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6) New Housing Authority Bonds (NHAs) or Public Housing Authority Bodns (PHAs) also called Series 8 Bonds |
*** Backed by the full faith and credit of the US government - Issued to develop and improve low-income housing, - Considered the most secure municipal bond and. - Backed by the rental income from the housing |
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7) Moral Obligation Bonds |
- Typically Issued in times of distress - Essentially revenue bonds only. - state or local issued, or state or local agency - issued bond. - If revenues or tax collections backing the bond are not sufficient, the state legislature has the authority to appropriate funds to make payments. **It's not established by law, just moral obligation.
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Issuer Default |
- If a GO bond goes into default, bondholders have the right to sue to compel a tax levy to pay off the bonds. - The only way bondholders can get paid is through legislative apportionment. * issuer not obliged legally, just moraly obliged |
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Municipal Notes
(Municipal Anticipation notes) |
- Short-term securities that generate funds for a municipality that expects revenues soon. - Usually, have less than 12-month maturities * But range from 3 months to 3 years. - Repaid when municipality receives the anticipated funds.
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Types of Municipal Notes |
1) Tax anticipation notes (TANs) 2) Revenue anticipation notes (RANs) 3) Tax and revenue anticipation notes (TRANs) 4) Bond Anticipation notes (BANs) 5) Tax-exempt commercial paper 6) Construction loan notes (CLNs) 7) Variable rate demand notes (VRDOs) 8) Grant anticipation notes (GANs) |
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1) Tax anticipation notes (TANs) |
- issued to finance current operations in anticipation of future tax receipts. - Helps municipalities to even out cash flow between tax collection periods. |
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2) Revenue anticipation notes (RANs) |
- Offered periodically to finance current operations in anticipation of future revenues from revenue producing projects or facilities. |
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3) Tax and revenue anticipation notes (TRANs) |
- Combination of both TAN and RAN. - Anticipated Tax and Revenue (revenue producing facilities)
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4) Bond Anticipation notes (BANs) |
- Sold as interim financing that will eventually be converted to long-term funding through a sale of bonds. |
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5) Tax-exempt commercial paper |
- Often used in place of BANs and TANs for up to 270 days. - Maturities are most often 30, 60 and 90 days |
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6) Construction loan notes (CLNs) |
- Issued to provide interim financing for the construction of housing projects
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7) Variable rate demand notes (VRDOs) |
- Have fluctuating interests - Usually issued with a put option - Principal Stays the same. Interest payments adjust to the movements of another specified interest rate.
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8) Grant anticipation notes (GANs) |
- Issued with the expectation of receiving grant money from the federal government. |
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Auction Rate Securities (ARS)
.... also a VRDO |
- Long-Term variable rate bonds tied to short term interest rates. - Issued by by municipalities, nonprofit hospitals, utilities housing finance agencies, and universities. - Maturities range from 20-30 years. - Interest rates determined using dutch aution method at predetermined short term intervals * intervals usually 7, 28 or 35 days - Failed Auctions are a hazard that could result in downgrading credit rating. - Trade at par and are callable at par on any interest payment date at the option of the issuer. - They do not carry put features.. |
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SLGS (State and Local Government Securities Series) |
- These are US government securities issued directly by the treasury to municipal issuers only in connection with pre-refundings. |
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BABs (Build America Bonds) |
- Created under the Economic Recovery and Reinvestment Act of 2009 to assist in reducing costs to issuing municipalities and stimulating the economy. - BABs are taxable obligations. * Bondholders pay interest tax, but tax credits are provided in lieu of the tax-exempt status usually afforded the interest on munis. |
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Types of BABs
* (BABs) Program expired on Dec, 31, 2010. ** Could be reinstated at some point. *** Issues still remain outstanding |
1) Tax Credit BABs: Provide the bondholder with a federal income tax credit equal to 35% of the interest paid on the bond in each tax year. If bondholder lacks sufficient tax liability to use that year's credit, the excess carries forward.
2) Direct Payment BABs: Provide no credit to the bondholder but instead provide the municipal issuer with payments from the US treasury equal to 35% of the interest paid by the issuer.
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