A provision present in many bond contracts providing that the unpaid principal becomes immediately due and payable upon the occurrence of one or more specified events of default, either events that automatically result in acceleration or events that result in acceleration only after the issuer orobligor has failed to cure the default after notice.
The risk to an investor that a lessee in a certificate of participation orlease rental bond financing might not occupy a newly constructed or renovated facility (and thereby might not begin making lease payments) because of dissatisfaction with the final construction or condition of the financed facility.
The dollar amount of interest, based upon the stated rate of interest, that has accumulated on a security from (and including) the most recentinterest payment date (or, in certain circumstances, the dated date or other stated date), up to but not including the date of settlement of a transaction in such security. Accrued interest is paid to the seller by the purchaser. Accrued interest is usually calculated on the basis of a 360-day year (assuming that each month has 30 days), but alternative day counting methods (most commonly based on a 365- or 366-day year counting actual days elapsed).
An account established by the sponsor of aunit investment trust into which securities purchased for the portfolio of the trust are placed until the trust is formally created and the securities are deposited into the trust.
A direct tax calculated according to value of property. Ad valorem tax is based on an assigned valuation (market or assessed) of real property and, in certain cases, on a valuation of tangible or intangible personal property. In virtually all jurisdictions, ad valorem tax is a lien on the property enforceable by seizure and sale of the property. An ad valorem tax is normally the one substantial tax that may be raised or lowered by a local governing body without the sanction of superior levels of government (although constitutional or statutory restrictions such as tax rate limitations may limit this right).
An issue of bonds having a lien on the same revenues or other security pledged to outstanding bonds. Additional bonds may be issued on a parity with the outstanding bonds, although in some cases additional bonds may have either a junior lien or a senior lien on pledged revenues or other security. Additional bonds are generally issued under the same bond contract.
For purposes of certain tax and securities laws and regulations, a refunding in which the refunded issue remains outstanding for a period of more than 90 days after thei ssuance of the refunding issue. Typically, such refunded bonds are secured solely by an escrow funded with the proceeds of the refunding bonds. The proceeds of the refunding issue are generally invested inTreasury securities or federal agency securities (although other instruments are sometimes used), with principal and interest from these investments being used (with limited exceptions) to payprincipal andinterest on the refunded issue.Bonds are escrowed to maturity when the proceeds of the refunding issue are deposited in anescrow account for investment in an amount sufficient to pay the principal of and interest on the issue being refunded on the original interest payment and maturity dates, although in some cases anissuer may expressly reserve its right (pursuant to certain procedures delineated by the SEC) to exercise an earlycall of bonds that have been escrowed to maturity. Bonds are considered as prerefunded when the refunding issue of proceeds are escrowed only until a call date or dates on the refunded issue, with the refunded issue redeemed at that time. The Internal Revenue Code and regulations there under restrict the yield that may be earned on investment of the proceeds of an advance refunding issue.Interest on a bond that is issued to advance refund another bond cannot be excluded from gross income for bonds issued after December 31, 2017.Refundings in which the refunded bonds are outstanding for less than 90 days are not advance refundings for federal tax purposes, but they may be advance refundings under state law or the provisions of bond contracts requiring specified comfort that the escrow securing payment of the refunded bonds is adequate.
The contract among the members of an underwriting syndicate establishing the syndicate rules, including the rights, duties and commitments of thesenior manager and the other syndicate members with respect to the new issue of municipal securities being under written. In a competitive bid underwriting, the AAU is sometimes referred to as a syndicate account letter. The agreement among underwriters is also sometimes referred to as the underwriting agreement.
The process of setting bonds apart for the purpose of distribution to syndicate members. This term is often used interchangeably with allotment.
Taxation based on an alternative method of calculating federal incometax under the Internal Revenue Code.Interest on certain private activity bonds is subject to the AMT.
An entity that provides a platform for bringing together purchasers and sellers of securities or for otherwise performing functions commonly performed by an exchange. Participants are typically broker-dealers, including municipal securities dealers, or institutional investors that purchase securities or offer securities for sale by way of an offering or a bid-wanted procedure. The system operator must be registered under SEC Rule ATS as abroker-dealer or a securities exchange.
The process of paying theprincipal amount of an issue of securities by periodic payments either directly to bondholders or to a sinking fund for the benefit of bondholders. See: Debt Service; Debt Service Schedule.
Financial information or operating data of the type included in the final official statement with respect to theissuer or an obligated person. Rule 15c2-12 obligates underwriters for primary offerings of municipal securities to ensure that the issuer or other obligated person has undertaken to provide such information or data on an annual basis to the MSRB-EMMA system.
This term usually refers to the provisions of federal law prohibiting fraud (typically in the form of material omissions or misstatements or deceptive devices, schemes or conduct) in the issuance, purchase and sale of securities, regardless of whether such securities are subject to registration with the SEC. These include Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 and other related rules. Similar provisions appear in the securities laws of certain states.
With respect to the issuance of municipal securities, arbitrage usually refers to the difference between the interest paid on tax-exempt bonds and the interest earned by investing the proceeds of the tax-exempt bonds in higher-yielding taxable securities. Federal income tax laws generally restrict the ability to earn arbitrage in connection with tax-exempt bonds or other federally tax-advantaged bonds. Generally, transactions by which securities are bought and sold in different markets at the same time for the sake of the profit arising from a difference in prices in the two markets.
Price being sought for asecurity by the seller. Also called an offer.
The return an investor would receive on a security, typically a Treasury, if the investor paid the ask price.
The appraised value of a property as set by a taxing authority for purposes of ad valorem taxation. The method of establishing assessed valuation varies from state to state. For example, in certain jurisdictions the assessed valuation is equal to the full or market value of the property; in other jurisdictions the assessed valuation is equal to a percentage of full or market value or is based on a base year market value, subject to limited permitted increases.
A financial institution responsible for conducting the Dutch auction used in connection with the periodicinterest rate reset andremarketing of auction rate securities.
A market for securities, typically found on a national securities exchange, in which trading in a particular security is conducted at a particular electronic or physical venue. Historically, a physical venue would consist of a specific location with all qualified persons at that post able tobid oroffer securities against orders via outcry.
Securities, in some cases issued by a tax-exempt bond fund, as preferred shares earning periodic dividend payments based on a rate of return determined through a Dutch auction procedure. Investment earnings realized by the bond fund are applied first to pay dividends on ARPS before being allocated to holders of common shares of the bond fund.
The par valueat which a municipal security can be purchased as authorized by the bond contract. The bond contract typically provides that all purchases must be made in authorized denominations equal to the minimum denomination or in multiples of $5,000 above such minimum denomination. However, in some cases where bonds have large minimum denominations, authorized denominations may be based on larger multiples, such as multiples of $100,000.
A calculation of the total interest cost for a bond issue expressed as a percentage. The average coupon is equal to the total interest payments of an issue divided by bond year dollars.
The official acceptance by the issuer of a bid oroffer to purchase a new issue of municipal securities by an underwriter. The date of the award is generally considered the sale date of an issue.
A sales charge or commission payable by an investor at the time of redemption of a municipal fund security. This charge is considered contingent because the amount of such charge typically will be reduced the longer the investor holds its investment and often will be eliminated after a specified period of time.
A maturity within a serial issue of securities (usually the last maturity) that contains a disproportionately large percentage of the principal amount of the issue. The payment of the balloon may be contingent upon or presume some form of refinancing or other event.
A bank or separately identifiable department or division of a bank engaged in the business of effecting municipal securities transactions. Bank dealers must be registered with the SEC and the MSRB.
Securities in which banks are permitted to invest under federal banking and securities laws.
Designation given to a public purpose bond offering by the issuer if it reasonably expects to issue in the calendar year of such offering no more than $10 million ($30 million for bonds issued in 2009-2010) of bonds of the type required to be included in making such calculation under the Internal Revenue Code. When purchased by a commercial bank for its portfolio, the bank may deduct a portion of the interest cost of carry for the position. A bond that is bank qualified is also known as a qualified tax-exempt obligation.
.01 or 1/100 of 1 percent of yield. Smallest measure used in quoting yields on bonds or notes. For example, if a yield increases from 3.00 percent to 3.01 percent, the difference is referred to as a one basis point increase. Often a basis point is referred to as a bp.
A price of a security expressed in terms of theyield or percentage of return to be realized by the purchaser. Sometimes referred to as the security basis or its yield price.
A bond that is presumed to be owned by the person who holds it. Since 1983,tax-exempt and other federally tax-advantaged bonds may not be issued in bearer form, with the exception of obligations maturing in one year or less or obligations of a type not generally offered to the public.
A reference point against which an interest rate, an index or a peer group of bond prices or other values is measured.
Properties located within a specified area (e.g., local improvement district) that receive a direct benefit from the construction of local improvements such as water lines, sewer pipes, street improvements or sidewalks. Owners of benefited properties are typically assessed a share of the cost of the improvements based on a formula that measures the relative benefit to each benefited property. Such assessments are typically repaid over time and may secure the repayment of special assessment bonds issued by local governments to fund the cost of the improvements.
Inventory of bonds distributed by a holder or municipal securities dealer in order to obtain bids.
The process by which an investor or municipal securities dealer actively solicits bids on a position ofsecurities from the marketplace.
(1) The written evidence of debt, which upon presentation entitles the bondholder or owner to a fixed sum of money plus interest. The debt bears a stated rate(s) of interest or states a formula for determining that rate and matures on a date certain. (2) For purposes of computations made on a per bond basis, a $1,000 increment of a security (no matter what the actual denominations are) (e.g. 10 bonds refers to a $10,000 investment). (3) Generally refers to debt securities with a maturity of greater than the short-term range.
Agency or instrumentality created in certain states to buy issues of bonds directly from municipalities or other local governmental entities. The purchases are financed by the issuance of bonds by the bond bank. Bond banks frequently provide low-cost financing for local governments.
An agreement outlining the obligations of the issuer with respect to the issuance and repayment of bonds. The terms of the agreement may be determined by reference to specified documents associated with the bond issue. Typically, the bond resolution and/or trust indenture, together with any other security agreements, constitute parts of the contract, as do those laws in force at the time of issuance. The documents that form the bond contract vary according to the terms of each issue.
An attorney or law firm retained, typically by the issuer, to give the traditional bond counsel opinion. Such opinion customarily opines that the bonds have been validly issued and, if tax exemption is intended, that the bonds are tax-exempt bonds. The opinion also may address related matters, such as state or local tax exemption and the enforceability of certain security provisions. Typically, bond counsel may prepare, or review and advise the issuer regarding, authorizing resolutions, bond contracts, official statements,validation proceedings and litigation.
The return on a discounted security figured on a basis that permits comparison with interest-bearing securities. For a short-term (under six months) discounted security, the bond equivalent yield is an annualized rate of return. For a longer term discounted security, the bond equivalent yield is determined by a computation that adjusts for the absence of periodic payments over the life of the security.
An equity security that invests in debt securities. While bond ETFs may invest in municipal securities, such bond ETFs are not themselves considered municipal securities.
A colloquial term for an investment company that invests in debt securities. In the case of atax-exempt bond fund, the investment company holds a diversified portfolio ofmunicipal securities and units or shares in the investment company are sold to investors.
A guarantee by a bond insurer of the payment of theprincipal of and interest on municipal bonds as they become due should the issuer or obligated person fail to make required payments. Bond insurance typically is acquired in conjunction with a new issue of municipal securities, although insurance also is available for outstanding bonds trading in the secondary market. In the case of insurance obtained at the time of issuance, the issuer of the policy typically is provided extensive rights under the bond contract to control remedies in the event of a default.
An insurance company or consortium of insurance companies that issues bond insurance policies to guarantee the payment ofprincipal of and/or interest on bonds.
The money paid to theissuer by the purchaser or underwriter of a new issue of municipal securities. These funds are used to finance the project or other purpose for which the securities were issued and to pay certain costs of issuance as may be provided in the bond contract or bond purchase agreement.
The contract between the underwriter and the issuer setting forth the final terms, prices and conditions upon which the underwriter purchases a new issue of municipal securities. A conduit borrower also is frequently a party to the bond purchase agreement in a conduit financing. The bond purchase agreement is sometimes referred to as the purchase contract.
A record, kept by a transfer agent or registrar on behalf of the issuer, that lists the names and addresses of the holders of registered bonds.
The semi-annual discount rate that equates the principal and interest payments to the original issue proceeds.
The person or entity having a true and legal ownership interest in a municipal bond. In the case of book-entry only bonds, the beneficial owner will often be treated as the bondholder in connection with certain key rights under the bond contract.
A security that is not available to purchasers in physical form. Municipal securities are typically held in the form of a single, global certificate. Ownership interests of, and transfers of ownership by, investors are reflected solely by appropriate books and records entries of the depository. Most municipal securities are in book-entry only form.
The value at which asecurity is carried on the financial records of its owner. This value may be the original cost of acquisition of the security or original cost adjusted by amortization of a premium or accretion of a discount. The book value may differ from the securities current market value.
A general term for asecurities firm that is engaged in both buying and selling securities for customers (i.e., agency or riskless principal trades) and/or for its own account (i.e., principal trades).
Taxable municipal securities issued through December 31, 2010 under the American Recovery and Reinvestment Act of 2009 (ARRA). BABs may be direct pay subsidy bonds or tax credit bonds.
The price, as established in the bond contract, at which securities will be redeemed, if called. The call price is generally at or above par (or thecompound accreted value in the case ofzero coupon and some deeply-discountedoriginal issue discount securities) and is stated as a percentage of theprincipal amount called.
A bond that the issuer is permitted to redeem before the stated maturity at a specified price, usually at or above par, by giving notice of redemption in a manner specified in the bond contract. In the case of zero coupon bonds, the call will be effected at equal to or greater than the compounded accreted value.
A municipal security on which the investment return on an initial principal amount is reinvested at a stated compounded rate until maturity. At maturity the investor receives a single payment (the maturity value) representing both the initial principal amount and the total investment return. CABs typically are sold at a deeply discounted price with maturity values in multiples of $5,000. CABs are distinct from traditional zero coupon bonds because the investment return is considered to be in the form of compounded interest rather than accreted original issue discount. For this reason only the initial principal amount of a CAB would be counted against a municipal issuer statutory debt limit, rather than the total par value, as in the case of a traditional zero coupon bond.
A portion of the proceeds of an issue that is set aside to pay interest on the securities for a specified period of time. Interest is commonly capitalized for the construction period of a revenue-producing project, and sometimes for a period thereafter, so that debt service expense does not begin until the project is expected to be operational and producing revenues.
Bonds issued to finance certain types of renewable energy projects such as solar, wind and geothermal. These bonds provide the bondholder with a federal tax credit in lieu of payment of interest.
The process of matching and novating (the act of replacing one participating member of a contract with another) inter dealer trades. Securities that are required to be cleared are submitted to a registered clearing agency for clearance and settlement.
A broker-dealer or bank that handles the clearance and settlement of securities transactions on behalf of its clients. The term generally is not used to refer to one of the registered clearing agencies.
A broker-dealer that acts as clearing agent in connection with a municipal securities transaction. In addition to handling its own transactions, a clearing broker can provide clearing agent services to other broker-dealers, such as introducing brokers and other market participants. A clearing broker may provide such back office and related record keeping functions on either a fully disclosed or omnibus basis. In a fully disclosed relationship, the introducing broker must disclose the identity and other relevant information regarding the client to the clearing broker.
A registered clearing agency that provides specialized comparison,clearance and settlement services for its members. A clearing corporation typically offers services such as automated comparison systems and transaction netting systems.
A swap agreement entered into by anissuer orobligor with a swap counterparty in connection with variable rate debt that combines an interest rate cap and an interest rate floor. Such arrangement is typically used to establish a minimum and maximum interest rate range that defines the payment obligations of the swap parties with respect to the swap. The obligor remains responsible for the payment of debt service on the bonds and typically will apply payments received under the collar to offset such payments.
Asset-backed securities consisting of securitized interests in pools of non-mortgage assets backed by bonds, loans, or other assets. Typically, multiple classes or tranches of CDOs are issued secured by the same pool of assets. The payments from the pool are applied to payments on the various classes of CDOs in a pre-determined order of priority.
Asset-backed securities consisting of securitized interests in pools of mortgage loans. Typically, multiple classes or tranches of CMOs are issued secured by the same pool of mortgage loans. The mortgage repayments from the pool are applied to payments on the various classes of CMOs in a pre-determined order of priority, resulting in different rates of payments and different levels of risk with respect to the various classes of CMOs.
A form of remuneration received by amunicipal securities dealer purchasing or selling securities when acting as agent for a customer. The commission is typically a charge to the customer of a set fee per bond or transaction. The commission (or any other remuneration received) must be disclosed to the customer as a separate item on the confirmation of an as agent transaction.
An independent federal agency charged with the regulation of commodity futures and option markets in the United States.
A method of sale chosen by an issuer, requesting underwriters to submit a firm offer to purchase a new issue of municipal securities. The issuer awards the municipal securities to the winning underwriter or syndicate presenting abid complying with the terms of a Notice of Sale that provides the lowestinterest rate cost according to stipulated criteria set forth in the Notice of Sale. The underwriting of securities in this manner is also referred to as a public sale or competitive bid.
The nominal value, at any given point in time, of a security such as a capital appreciation bond, zero coupon bond or some deeply-discounted original issue discount bond on which all or a portion of the investment return is received in the form of an accretion from an initial principal amount to amaturity or redemption value. The compound accreted value as of a given time is equal to the initial principal amount plus the accretion (calculated on the compound interest method) to that date. A security compound accreted value may differ from its market value depending on current interest rates. A schedule of compound accreted values for a security often is made available to investors, such as in the official statement.
A calculation method that assumes that all coupon payments are reinvested on the same frequency basis (and at the same rate) as the computed yield.
A report issued by a governmental entity that includes the entity audited statements for the fiscal year as well as other information about the entity. Such report must meet specific standards established by the Governmental Accounting Standards Board (GASB) in order to be considered a comprehensive annual financial report.
Disclosure of material information relating to municipal securities provided to the market place by the issuer of the securities or any other entity obligated with respect to the securities after the initial issuance of municipal securities. Such disclosures include, but are not limited to, annual financial information, certain operating information and notices about specified events affecting the issuer, the obligor, the municipal securities or the project financed. Such disclosures are required to be provided by the issuer or obligor to the MSRB-EMMA system for the benefit of bondholders of the issuer securities under continuing disclosure agreements entered into as contemplated under SEC Rule 15c2-12 or on a voluntary basis.
A redemption of bonds that may occur at any time after the initialcall date upon any required notice.
A primary offering of municipal securities in which the issuer issues and delivers the securities to the underwriter for redelivery to customers over an extended period of time, rather than issuing and delivering the securities to the underwriter on a single date. Municipal fund securities generally are issued in a continuous offering.
Federal and state constitutional provisions prohibiting state governments from enacting any law that impairs the obligation of an existing contract. The issue of contract impairment can arise with respect to municipal securities when action is taken or proposed that has the effect of reducing revenues pledged for payment of the securities or otherwise altering the security for their payment. Such action may be invalid as an unconstitutional impairment of the bondholders contract with the issuer or obligor, unless the bond contract permits amendments of the security provisions or substitution of security.
The tendency of the market value of a security to approach its redemption price or maturity value as the date of redemption or maturity draws nearer.
A bond having a fundamental feature that changes in a prescribed manner at a future date, typically determined by the issuer upon the meeting of specified conditions.
The periodic rate of interest, usually calculated as an annual rate payable on a security expressed as a percentage of the principal amount. The coupon rate, sometimes referred to as the nominal interest rate, does not take into account any discount or premium in the purchase price of the security.
The next highest bid on a new issue or secondary market transaction that has been put out to bid.
An agreement that transfers the credit risk of a third party from the protection buyer to a protection seller in exchange for a premium.
The use of the credit of an entity other than theissuer or obligor to provide additional security in a bond or note financing. This term typically is used in the context of bond insurance, bank letters of credit and other facilities, state intercept guarantees and credit programs of federal or state governments or federal agencies, but also may refer more broadly to the use of any form of guaranty, secondary source of payment or similar additional credit-improving instruments.
An announcement issued by a rating agency to the market of potential changes, either positive or negative, in the rating of an issue of outstanding securities. Such securities sometimes are said to be placed on a watchlist or on rating watch.
A coupon rate that is the same or similar to interest rates on new issues of municipal securities being sold at the same time. A bond with a current coupon would be trading at a price close topar and would have ayield to maturity approximately equal to its coupon rate.
A bond on which interest payments are made to the bondholders on a periodic basis. This term is most often used in the context of an issue of bonds that includes both capital appreciation bonds and current interest bonds.
A refunding transaction where the municipal securities being refunded will all mature or be redeemed within 90 days or less from the date ofissuance of the refunding issue. Certain federal income tax rules relating to permitted yields of invested proceeds of the refunding issue,rebate of arbitrage earnings and the ability to refund certain types of municipal securities may be less restrictive in the case of current refundings as contrasted with advance refundings.
An identification number assigned by the CUSIP Service Bureau to eachmaturity of an issue intended to help facilitate the identification and clearance of securities. In some cases, separate CUSIP numbers may be assigned to different portions of a maturity that bear different interest rates or where differences exist in the terms of the securities of such maturity that may impair the fungibility of the securities within the maturity. For example, if a portion of a maturity has beenadvance refunded and the remaining portion remains outstanding, each portion will be assigned a separate CUSIP number. CUSIP is an acronym for Committee on Uniform Securities Identification Procedures.
Secondary market products that represent an indirect interest in a taxable or tax-exempt bond or a pool of bonds held by a custodian.
The date from which interest on a new issue of municipal securities typically starts to accrue. This date is often used to identify a particular series of bonds of an issuer.
The amount of discount, sometimes referred to as the cut-off price, at which, for federal income tax purposes, interest on an original issue discount bond is not required to be included as income in advance of receipt. This treatment applies only when the original issue discount is very small (i.e., de minimis).
Refers generally to a debt instrument issued under anindenture orbond contract backed solely by the general credit of the issuer. Debentures are not secured by a pledge against any specific revenues, property or other asset of the issuer. The term debenture may also refer to the bond contract that governs the issuance of the instrument and the covenants relating thereto.
The maximum principal amount of debt that anissuer of municipal securities is permitted to have outstanding at any time under constitutional, statutory orbond contract provisions. The debt limit can be expressed in various manners, including, for example, as a percentage of assessed valuation.
Comparative statistics showing the relationship between the issuer's outstanding debt and such factors as its tax base, income or population. Such ratios are often used in the process of determining credit quality of an issue, primarily on general obligation bonds or other tax-supported debt. Some of the more commonly used ratios are (a) net overall debt to assessed valuation, (b) net overall debt to estimated full valuation, (c) net overall debt per capita, and (d) tax-supported debt to personal income.
A failure to pay principal of or interest on abond when due or a failure to comply with other covenant, promise or duty imposed by the bond contract. The most serious event of default, sometimes referred to as a monetary default, occurs when the issuer fails to pay principal, interest or other funds when due. Other defaults, sometimes referred to as technical or non-payment defaults, result when specifically defined events occur, such as failure to comply with bond contract covenants, failing to charge rates sufficient to meet rate covenants, failing to maintain insurance on the project or failing to fund various reserves. Generally, if a monetary default occurs or if a technical default is not cured within a specified period (usually after notice) such default becomes an event of default and the bondholders or trustee may exercise legally available rights and remedies for enforcement of the bond contract.
Termination of certain of the rights and interests of the bondholders and of their lien on the pledged revenues or other security in accordance with the terms of the bond contract for an issue of securities. This is sometimes referred to as a legal defeasance. Defeasance usually occurs in connection with the refunding of an outstanding issue after provision has been made for future payment of all obligations related to the outstanding bonds, sometimes from funds provided by the issuance of a new series of bonds. In some cases, particularly where the bond contract does not provide a procedure for termination of these rights, interests and lien other than through payment of all outstanding debt in full, funds deposited for future payment of the debt may make the pledged revenues available for other purposes without effecting a legal defeasance. This is sometimes referred to as an economic defeasance or financial defeasance. If for some reason the funds deposited in an economic or financial defeasance prove insufficient to make future payment of the outstanding debt, theissuer would continue to be legally obligated to make payment on such debt from the pledged revenues.
A registered clearing agency and holding company that through its subsidiaries provides book entry,clearance and settlement for various types of securities, including municipal securities.
A product whose value is derived from an underlying security or other asset structured to deliver varying benefits to different market segments and participants. The term encompasses a wide range of products offered in the market place including interest rate swaps, caps, floors,collars and other synthetic variable rate products.
A colloquial term forbonds secured by land values, often on unimproved property. The security for payment of debt service may be in the form of, among other things, mortgages on property, property taxes or special assessments based on the valuation of property, special assessments based on the benefit to a property or sales proceeds received upon sales of parcels of property.
An attorney or law firm retained by the issuer to provide advice on issuer disclosure obligations and to prepare the official statement and/or continuing disclosure agreement.
For a discount bond, the difference between the price paid for a bond and itspar value or compound accreted value. For tax purposes, the actual amount of discount with respect to a particular security may be affected by the existence of any original issue discount or original issue premium.
A method for determining liability in an underwriting of a new issue of municipal securities, as set out in the agreement among underwriters, in which each member of an underwriting syndicate is liable only for the amount of its participation in the issue and not for any unsold portion of the participation amounts allocated to the other underwriters.
A colloquial term for abond that is usually quoted and traded in terms of dollar price rather than yield. Dollar bonds are typically longer dated term bonds from large issues.
A quoted price of a security, expressed in terms of dollars per $100 par value. The dollar price is the transaction price which may be derived from theyield (basis price) of the transaction.
A bond secured by both a defined source of revenue (other than property taxes) and the full faith and credit or taxing power of anissuer that has taxing powers.
The lowering of a bond rating by a rating agency due to a deterioration of the credit quality of the issue.
The term commonly used to refer to the investigation made by underwriters, usually with the assistance of counsel, in part to determine the accuracy and adequacy of the official statement and to discover information that may be required in an official statement to ensure its completeness.
A measure of the timing of cash flows (i.e., theinterest payments and theprincipal repayment) to be received from a given fixed income security. Duration is used to assess price volatility for given changes in interest rates, the reinvestment risk associated with a given portfolio or the interest rate risk associated with matching particular interest-rate-sensitive assets and liabilities.
A process by which securities are sold at the lowest yield at which sufficient bids are received to sell all securities offered. Generally, the securities will be sold at the clearing yield established by the Dutch auction process to all investors placing bids at or below the clearing yield (lowest yield).
The rate at which the total debt service payable on a new issue of municipal securities would be discounted to provide a present value equal to the amount bid on the new issue.
The actual rate of interest earned by the investor on securities, which takes into account the amortization of any premium or the accretion of any discount over the period of the investment.
The process of submitting a competitive bid for a new issue of municipal securities or a bid on asecondary market trade through any of several proprietary services that facilitate the collection of bids by electronic means.
The types of securities in which investments are permitted by law or under a bond contract and often refers specifically to the types of securities authorized under the bond contract to be held in escrow for the purpose of defeasing bonds.
A fund established to hold funds pledged and to be used solely for a designated purpose, typically to pay debt service on an outstanding issue in an advance refunding.
Refers to a letter of credit that provides that the stated expiration date is automatically reinstated (renewed) until the bank issuing the letter of credit gives notice to the beneficiary of the letter of credit that it will expire.
A security that tracks an index, a commodity or a basket of assets similar to an index fund, but trades like a stock on an exchange. An ETF holds assets such as stocks, commodities or bonds.
A tax levied upon the manufacture, sale or consumption of commodities, upon the license to pursue certain occupations, or upon corporate privileges within a taxing jurisdiction. Examples of such taxes include taxes on alcohol and cigarettes.
A symbol, also known as a market participant identifier (MPID), issued to broker-dealers by NASDAQ for the purpose of identifying municipal securities dealers that execute municipal securities transactions reported to theMSRB'S Real-Time Transaction Reporting System.
Securities not subject to the registration requirements of the Securities Act of 1933 or the reporting requirements of the Securities Exchange Act of 1934. In general, U.S. government securities,agency securities and municipal securities are exempted from such requirements.
The average life of a security (e.g., a super sinker) that can be redeemed prior tomaturity on other than a scheduled basis. The expected average life is calculated based on an estimation of the likely timing and amounts of redemptions occurring prior to maturity.
The total principal amount of a trade that is calculated by multiplying the quantity purchased by the price of the security. In the case of certain asset-backed or mortgage-backed securities, this result must be multiplied by a factor that represents the then-current principal amount remaining outstanding, expressed as a decimal.
Agreement between a buyer and seller of securities to make delivery of securities on a date that is later than regular-way settlement.
A mandatory or optional redemption triggered by the occurrence of certain one-time or extraordinary events specified in the bond contract. An extraordinary redemption may be triggered by, among other things,bond proceeds remaining unexpended by a specified date or the loss of the facility financed with the proceeds of the bonds by fire or damage or by eminent domain taking.
The original maturity amount of a bond.
If the auction agent for auction rate securities does not receive sufficient orders to purchase all the securities being sold at auction, an auction is deemed to have failed and existing owners that have submitted sell orders will not be able to sell such securities in that auction. All holders will receive the fail rate for the next rate period.
The requirement under MSRB Rule G-17 that all municipal securities dealers and municipal advisors deal fairly with all persons and not engage in deceptive, dishonest or unfair practices.
A letter or opinion prepared by a financial advisor, pricing advisor or similarly qualified person opining on the fairness of the price paid by the underwriters to the issuer in connection with a new issue of municipal securities or paid by purchasers of assets. The term also sometimes refers to similar letters delivered by an investment banker, financial advisor or similarly qualified person regarding the fairness of the price being paid by an issuer or conduit borrower for assets being purchased with bond proceeds or for the pricing terms of swap agreements or other arrangements entered into by an issuer.
An arrangement between The Depository Trust and Clearing Corporation and transfer agents to hold securities registered in DTC's nominee Cede & Co. in book-entry form. FAST minimizes certificate movements and streamlines transfer processing by recording the securities in book-entry form on the books and records of the issuer's transfer agent and further reconciling these securities through automated data feeds.In most cases transfer agents maintain one immobilized jumbo certificate representing the entire DTC position per issue.
A report or study detailing the economic practicality of and the need for a proposed program, service or project. It frequently analyzes the market or demand for the program, project or service being considered, historical revenues and expenditures for the same or comparable facilities, and, based upon assumptions, makes forecasts or projections of financial performance or other operating statistics. The feasibility study may include a user or other rate analysis to provide an estimate of revenues that will be generated for the purpose of substantiating that debt service can be met from pledged revenues. In addition, the feasibility study may provide details of the physical, operating, economic or engineering aspects of the proposed project, including estimates of or assumptions regarding construction costs, completion dates and drawdown schedules.
Federal agency that guarantees (within limits) funds on deposit (other than securities) in member banks and thrift institutions, and performs other functions relating to the safety and soundness of its member institutions. The FDIC also enforcesMSRB rules applicable to its member banks (other than banks that are members of the Federal Reserve System) that are municipal securities dealers.
The Board of Governors of the Federal Reserve System, which is the federal agency responsible for making national monetary policy and supervising and regulating certain banking institutions. In addition, the Federal Reserve Board enforces MSRB rules applicable to the system's member banks that are municipal securities dealers.
A party having the duty of acting in a capacity of special trust for the benefit and in the best interests of another.
Information required to be included by a municipal securities dealer in a confirmation of a transaction in municipal securities with a customer relating to, among other things, the total dollar amount of the transaction, accrued interest, extended principal amount, and transaction-based commission or other fees paid by the customer to the municipal securities dealer.
A standard-setting body that prescribes authoritative standards of financial accounting and reporting practices of private sector entities.
(1) With respect to a new issue of municipal securities, commonly refers to an individual or firm that advises the issuer or other obligated person on matters pertinent to the issue, such as structure, timing, marketing, fairness of pricing, terms and bond ratings. A financial advisor may also be employed to provide advice on subjects unrelated to a new issue of municipal securities, such as advising on cash flow and investment matters in connection with outstanding municipal securities. The financial advisor is sometimes referred to as a fiscal consultant or agent. (2) An investment professional who advises customers on the purchase and sale of securities.
A self-regulatory organization, formerly known as the National Association of Securities Dealers (NASD), that enforces MSRB rules applicable to the municipal securities activities of its member broker-dealers, administers the MSRB professional qualification examinations and handles arbitration proceedings relating to municipal securities for its member broker-dealers and for bank dealers. FINRA also adopts rules governing the conduct of its members with respect to most types of securities other than municipal securities.
A unique identifier assigned by theDepository Trust and Clearing Corporation to each bank, broker-dealer, insurance company, mutual fund, money manager,transfer agent and other institution engaged insecurities processing.
The date on which an issuer's initial interest payment to bondholders on a particular security is due.
A 12-month period at the end of which financial position and results of operations of an entity are determined. Financial reporting, budgeting and accounting periods are determined on the basis of the applicable fiscal year, which may not be a calendar year.
A subsidiary of DTCC that processes fixed income transactions.
A security evidencing an indebtedness on the part of the obligor and having the basic characteristic of providing for periodic payments of interest and repayment on a specified date of the principal amount of the security. Certain forms of indebtedness that do not provide for periodic payments of a fixed amount of interest income (e.g., variable rate demand obligations, zero coupon bonds) none the less generally are considered to be fixed income securities.
An interest rate on asecurity that does not change for the remaining life of the security.
An agreement where by an issuer synthetically converts fixed rate debt into variable rate debt through an interest rate swap or similar arrangement. In this process, the issuer makes payments to the counter party at a variable rate determined according to the terms of the swap while the counterparty pays a fixed rate also according to the terms of the swap, which may be equivalent to the rate due to bondholders as determined under the bond contract.
A designation that a particular transaction has been effected on terms that do not include accrued interest.Securities indefault as to payments of interest generally trade flat.
The immediate resale of allotted bonds in a primary offering, which may involve a prearranged trade, where the initial purchaser does not intend to hold the bonds for investment purposes but instead expects to make a profit from such immediate resale.
A contract between an issuer and a counter-party whereby the counter-party guarantees a rate of reinvestment return on specified funds (e.g., funds temporarily available between the time that investments mature or are otherwise paid and the time that such funds can be reinvested) in one or more funds or accounts under abond contract or escrow deposit agreement.
A fund in which funds are deposited for temporary periods between the time that investments mature or are otherwise paid and the time that such funds can be reinvested.
A colloquial term for asecurity with a variable or floating interest rate.
A debt instrument with a variable rate of interest that resets at specified intervals at a predetermined spread to an index or formula.
An agreement whereby an issuer synthetically converts variable rate debt to fixed rate debt through an interest rate swap or similar arrangement. In this process, the issuer makes payments to the counter party at a fixed rate according to the terms of the swap and the counter party makes payments on a variable rate or rates according to the terms of the swap, which may be equivalent to the rates payable to bond holders under the bond contract.
The formal written agreement and/or official action by the issuer selling a new issue of municipal securities to the underwriter and setting forth the terms of the issue.
A contract (variously known as a forward contract, forward delivery agreement or forward purchase contract) where in the buyer and seller agree to settle their respective obligations at some specified future date based upon the current market price at the time the contract is executed. A forward may be used for any number of purposes. For example, a forward may provide for the delivery of specific types of securities on specified future dates at fixed yields for the purpose of optimizing the investment of a debt service reserve fund. A forward may provide for anissuer to issue and anunderwriter to purchase an issue of bonds on a specified date in the future for the purpose of effecting a refunding of an outstanding issue that cannot be advance refunded.
A sales charge or commission payable by an investor at the time of purchase of a municipal fund security.
A method of refunding in which the proceeds of refunding bonds and any other available money, without reinvestment, will provide sufficient funds to pay debt service on the refunded bonds.
The principle that accurate and complete information material to asecurities transaction that an investor would be likely to consider important in making investment decisions must be made available to the investor. Material information may include descriptions of theissuer or other obligor, including operating and financial data, as well as the structure of andsecurity for the issue. The material facts pertinent to a new issue of municipal securities normally are disclosed in the official statement or other offering documents.
A term normally used in connection with general obligation bonds to express the commitment of the issuer to repay the bonds from all legally available funds, including a good faith commitment to use its legal powers to raise revenues to pay the bonds, although the precise nature of such commitment may vary considerably from issuer to issuer depending on applicable state or local law. However, some issuers may issue full faith and credit bonds without stating that such bonds are general obligations. In some cases, such full faith and credit bonds may be indistinguishable from typical general obligation bonds, while other full faith and credit bonds may be expressly distinguished from general obligation bonds with potentially differing sources and priority of payments, depending on applicable state or local law.
A term referring to the interchangeability of financial instruments having effectively identical features.
An agreement whereby two parties agree to buy and sell the value of a commodity or security for settlement at a future date. Generally, there is no physical delivery of the underlying commodity or security; rather,settlement is made on a cash basis. Futures are generally exchange-traded. Futures contracts relating to municipal securities are generally referred to as bond futures.
A colloquial term for a grant anticipation revenue obligation. Garvee bonds are authorized under the National Highway System Designation Act of 1995 as a mechanism for allowing state and local agencies to issue debt for transportation projects using future federal highway funds to repay the principal, interest, and any other costs associated with the issuance of the debt.
Typically refers to a bond issued by a state or local government that is payable from general funds of the issuer, although the precise source and priority of payment for general obligation bonds may vary considerably from issuer to issuer depending on applicable state or local law. Most general obligation bonds are said to entail the full faith and credit (and in many cases the taxing power) of the issuer, depending on applicable state or local law. General obligation bonds issued by local units of government often are payable from (and in some cases solely from) the issuer's ad valorem taxes, while general obligation bonds issued by states often are payable from appropriations made by the state legislature.
GAAP Standards adopted by the Financial Accounting Standards Board (FASB) for preparing financial statements of private enterprises and by the Governmental Accounting Standards Board (GASB) for preparing financial statements of state and local governments. While FASB GAAP is required for the preparation of financial statements for publicly traded companies in the United States, some states do not require implementation of GASB GAAP, in whole or in part, by governmental entities within such states.
A single certificate, sometimes referred to as a jumbo certificate, representing an entire maturity of an issue of securities. Such certificates are often used in book-entry systems. The issuer issues a global certificate that is then lodged in the facilities of a depository or other book-entry agent for safe keeping by the agent until maturity or redemption. The securities are available to beneficial owners only in book-entry form and no certificates can be obtained.
An order for securities (usually new issue municipal securities) that is from an investor rather than from a municipal securities dealer seeking to purchase the securities for trading inventory.
The presentation by a municipal securities dealer ofsecurities sold to a purchaser that are in acceptable form for delivery purposes under MSRB rules. The delivery standards cover such matters as the criteria for fungibility of securities, denominations, delivery oflegal opinions and other required documents, and other similar matters.
A sum of money or surety bond provided to an issuer of a new issue of municipal securities by an underwriter or underwriting syndicate as an assurance of performance on its offer to purchase the issue. Good faith deposits may be required in connection with competitive sales and sometimes in connection with negotiated sales.
A standard-setting body, associated with the Financial Accounting Foundation and comparable to the Financial Accounting Standards Board. GASB establishes standard of financial accounting and reporting practices for state and local governmental units.
A provision in the bond contract in which theissuer agrees to pay a higher rate of interest in the event of the occurrence of certain events, typically where interest onbonds issued as tax-exempt bonds becomes taxable. The provision may call for a higher rate of interest for on-going payments of interest to bondholders and may also provide for a payment to bondholders intended to make the total of prior interest payments made to the bondholders equal to the amount that would have been payable had the bonds previously borne interest at the higher rate.
An investment, secured by a contract with a financial institution, that guarantees a fixed rate of return and a fixed maturity.
In the computation of net capital for purposes of SEC rules, the amount that a broker-dealer must deduct from its net worth in connection with each long or short inventory position it maintains in securities. The haircut may be considered a reserve against loss due to a subsequent decline in the market value of the securities.
An investment entered into to reduce or offset the risk of adverse price movements in a security by taking an offsetting position in another investment.
Potential new issues of municipal securities that have not been publically announced. These issues may be interest-rate sensitive or are pending the occurrence of a particular event or legal ruling.
A bond that is typically non-rated or rated below investment grade. High-yield bonds trade at higher yields than investment grade securities.
A bond fund in which a substantial portion of the assets in the portfolio are invested in high-yield bonds.
A bond issued to finance multi-family housing projects or single-family home mortgages secured by the payment of the underlying mortgage loans. Single family mortgage revenue bonds are Bonds issued to finance mortgage loans on single-family homes, either directly by purchasing newly originated or existing mortgage loans or indirectly by allowing lenders to purchase mortgage loans using bond proceeds. Such mortgage loans generally are targeted to first-time homeowners meeting certain income and purchase price requirements. Repayment of the mortgages may be further secured by federal programs or through private mortgage insurance. Multi-family housing revenue bonds are Bonds issued to finance construction or rehabilitation of multi-family housing projects where a specified proportion of the units will be rented to moderate- and low-income families, in some cases specifically targeted toward elderly residents. These securities may provide financing either directly or through a loans-to-lenders program, and may be secured, in whole or in part, by federal agency guarantees or subsidies.
The assumption by one party to a securities transaction of responsibility to pay or reimburse the costs, expenses and other liabilities incurred by another party for certain specifically enumerated events or occurrences.
A contract between the issuer of municipal securities and a trustee for the benefit of the bondholders. The trustee administers the funds or property specified in the indenture on behalf of the bondholders. The indenture, which is generally part of the bond contract, establishes the rights, duties, responsibilities and remedies of the issuer and trustee and determines the exact nature of the security for the bonds. The trustee is generally empowered to administer the terms of the indenture on behalf of the bondholders. In many governmental issues (particularly for general obligation bonds and some types of limited tax bonds and revenue bonds), the issuer may forego using an indenture and set forth the duties of the issuer and the rights of bondholders in the bond resolution. In certain transactions, the indenture may be called a trust agreement.
(1)Bonds whose trading activity is monitored and included as part of an index of actively traded bonds. (2) A debt instrument with a variable rate of interest that resets periodically based on a fixed spread to a specified index.
A portfolio structured and managed to approximate the performance of an index, or a portfolio composed ofsecurities used in a given index.
Indicators published on a periodic basis that show the estimated price and/or yield levels for various groups of municipal securities. Indices may represent daily, weekly or monthly averages.
The approximate market value of a security, provided for informational purposes only. Sometimes referred to as a nominal quotation, an indication does not represent an actual bid for or offer of securities.
A non-binding presale expression of interest in a forthcoming new issue.
A private activity bond issued by state and local governments on behalf of non-governmental corporations and businesses.
In connection with the offering of shares or units in a local government investment pool, the issuer's disclosure document.
The price at which a new issue of municipal securities is offered to the public at the time of original issuance. This price is sometimes referred to as the public offering price. The initial offering price may be at a discount to par, par or apremium to par.
Conduct in violation of federal securities laws whereby a person buys or sells a security, in breach of afiduciary duty or other relationship of trust and confidence, on the basis of material, non-public information. Insider trading also may occur when, in breach of a fiduciary duty, a person discloses such material, non-public information to a third-party who buys or sells a security on the basis of such information.
A trade between two municipal securities dealers in transactions as agent or principal.
The amount paid by a borrower as compensation for the use of borrowed money. Issuers of municipal bonds pay interest on funds borrowed from purchasers of their bonds. This amount is generally calculated as an annual percentage of the principal amount.
A request that a person who received an interest payment on a security, but was not entitled to it, forward the proceeds of the payment to the rightful recipient.
The date on which interest payments are due to be made to bondholders.Fixed rate current interest paying bonds typically have semi-annual interest payment dates.Variable rate securities often have monthly interest payment dates but also may have interest payment dates occurring at other intervals.
The annual rate, expressed as a percentage of principal, payable for use of borrowed money.
(1) Used typically onvariable rate debt, the maximum interest rate that can be paid on the debt (often determined by state law), regardless of whether the method for determining the variable rate would otherwise provide for a higher rate of interest. (2) An agreement for a derivative transaction entered into by the issuer orobligor of variable rate debt in which the counter-party agrees to pay any portion of the interest to be paid on the debt that exceeds a specified interest rate or strike price. A cap creates an upper limit on the interest rate cost to the issuer or obligor of variable rate debt without establishing a maximum interest rate payable to the holders of the debt.
(1) Used typically on variable rate debt, the minimum interest rate that can be paid on the debt, regardless of whether the method for determining the variable rate would otherwise provide for a lower rate of interest. (2) Typically used as part of an interest rate collar for variable rate debt, an interest rate floor is an agreement where by the issuer agrees to pay a stated rate ofinterest even if the actual rate on the variable rate debt is lower. The interest rate floor agreement is entered into with a third-party who typically pays the issuer an upfront fee in exchange for the right to collect the difference between the interest rate floor and the actual lower rate on the debt.
A specific derivative contract entered into by an issuer or obligor with a swap provider to exchange periodic interest payments. Typically, one party agrees to make payments to the other based upon a fixed rate of interest in exchange for payments based upon a variable rate. The swap contract may provide that the issuer will pay to the swap counter-party a fixed rate of interest in exchange for the counter-party making variable payments equal to the amount payable on the variable rate debt.
Unaudited financial statements, sometimes known as stub period financials, often included in the official statement for a new issue of municipal securities covering the interim period since the most recent audited financial statement for theissuer or conduit borrower.
A designation given to the maturities of a serial issue between the short-term maturities and the long-term maturities. Typically, the intermediate range on the yield curve consists of bonds maturing in three to 15 years.
The Internal Revenue Code of 1986, as amended from time to time. The exclusion of interest on tax-exempt bonds from gross income for federal income tax purposes derives from Section 103 of the Code and is subject to certain conditions set forth in Sections 141 through 150, and certain other provisions, of the Code.
A municipal securities dealer that effects transactions with its customers through a clearing broker and does not hold customer funds or securities.
A variable rate derivative security whose coupon rate changes in the opposite direction from the change in the reference rate used to calculate the coupon rate. Inverse floaters are issued in conjunction with floaters, with the variable rate on the inverse floater equal to a fixed percentage rate less the then-current rate (i.e., the reference rate) on the floater. Thus, the rate on the inverse floater increases as the rate on the floater decreases, and vice versa.
A fund under the bond contract into which periodic sinking fund payments are made by an issuer to the trustee, with such funds invested and held in trust for the finalmaturity payments on the bonds.
A security that, in the opinion of the rating agency, has a relatively low risk of default.
A letter signed by an investor acknowledging the risks associated with the securities being purchased and usually containing certain representations of the investor as to the investor's net worth, sophistication and access to information. An issuer and underwriter may sometimes require an investor letter in connection with more risky securities that they believe should be held only by investors with sufficient resources and market sophistication to understand and bear the risks involved in such investment.
The process of authorizing, selling and delivering by the issuer of a new issue of municipal securities.
Bonds or notes sold on a contemporaneous (or nearly contemporaneous) basis in one or more series that are authorized under the same bond contract.
The date on which bonds were issued.
A state, territory, political subdivision, municipality, or governmental agency or authority that raises funds through the sale of municipal securities.
An account that is formed to share ownership and risk among two or more municipal securities dealers for the purpose of purchasing and distributing an agreed-upon block or blocks of securities.
Bondst hat have a claim against pledged revenues or other security subordinate to the claim against suchpledged revenues or security of other obligations, also known as subordinate lien bonds.
In the context of municipal finance, a financing agreement pursuant to which a governmental entity has the ability to acquire ownership of the leased property. The financing lease may be sold to investors in the form of certificates of participation. In contrast, under a true lease, the entity merely leases the property during the lease term.
Unique identification numbers assigned by designated entities to financial market participants under an international initiative.
A security that meets the requirements of state laws restricting the investment practices of institutions (particularly savings banks) located in the state.
The written conclusions of bond counsel that theissuance of municipal securities and the proceedings comply with applicable laws, that the municipal securities are legal, valid and enforceable obligations of the issuer and that, in the case of tax-exempt bonds,interest on the bonds is excluded from gross income of the bondholders for federal income tax purposes and, where applicable, from state and local taxation.
An irrevocable commitment, usually made by a commercial bank, to honor demands for payment of a debt upon compliance with conditions and/or the occurrence of certain events specified under the terms of the letter of credit and any associated reimbursement agreement. A letter of credit is frequently used to provide credit and liquidity support for variable rate demand obligations and other types of securities. Bank letters of credit are sometimes used as additional sources of security for issues of municipal notes,commercial paper or bonds, with the bank issuing the letter of credit committing to pay principal of and interest on the securities in the event that the issuer is unable to do so.
A cronym for London Interbank Offered Rate, which represents the average rate at which a leading bank can obtain unsecured funding in the London interbank market. LIBOR serves as a benchmark for various interest rates. Obligations of parties to such transactions are typically expressed as a spread to LIBOR.
An offering of anew issue of municipal securities sold to a limited number of investors that meet certain established standards for qualifying as a purchaser of the securities. The term typically refers to an offering exempt from the provisions of Rule 15c2-12 as aprimary offering of municipal securities in authorized denominations of $100,000 that are sold to no more than 35 persons each of whom the underwriter reasonably believes: (a) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment; and (b) is not purchasing for more than one account or with a view to distributing the securities.
A bond secured by a specific tax or category of taxes, or a specific portion of any such taxes.
A general obligation bond payable from ad valorem taxes that are limited by law in rate or amount.
A derivative structure whereby a municipal security is deposited into a trust which issues two new securities, a floater and an inverse floater. When one entity owns both the floater and the inverse floater this is called a linked security.
The relative ability of asecurity to be readily converted into cash.
A letter of credit, standby bond purchase agreement or other arrangement used to provide liquidity to purchase securities, typically variable rate demand obligations, that have been tendered to the issuer or its agent but which cannot be immediately remarketed to new investors. The provider of the liquidity facility, typically a bank, purchases the securities (or provides funds to the issuer or the remarketing agent to purchase the securities) until such time as they can be remarketed.
A sales charge or commission paid by an investor. Typically, this term is used only in connection with investments in mutual funds and municipal fund securities.
An investment pool established by a state or local governmental entity or instrumentality that serves as a vehicle for investing public funds of participating governmental units. Participants purchase shares or units in the pool (often formed as a trust) and assets are invested in a manner consistent with the portfolio's stated investment objectives. The investment advisor invests in a manner consistent with the cash management needs of the governmental unit participants.
A situation in which the bid-ask spread in a two-sided market for a security is zero.
An interest payment for a period longer than the standard period of six months.
A designation given to maturities of a serial issue and term bonds typically having maturities of more than 15 years from issuance.
A type of call provision allowing the issuer to pay off debt early that is designed to protect the investor from losses as a result of the earlier call. In order to exercise the call, the issuer must make a lump sum payment derived from a formula based on the net present value of future interest payments that will not be paid as a result of the call. Because the cost can often be significant, such provisions are rarely used.
The member (or members) of an underwriting syndicate charged with primary responsibility for conducting the affairs of the syndicate. The lead manager generally takes the largest underwriting commitment. (Lead Manager, Senior Manager or Bookrunning Manager). The underwriter serving as head of the syndicate. The lead manager generally handles negotiations in a negotiated underwriting of a new issue of municipal securities or directs the processes by which abid is determined for a competitive underwriting. The lead manager also is charged with allocating securities among the members of the syndicate according to the terms of theagreement among underwriters and the orders received. Joint Manager or Co-Manager means any member of the management group (although the term is often used to refer to a member other than the lead manager). Sole Manager: The underwriter of a new issue where no underwriting syndicate is formed.
The requirement that a bondholder surrender the security to the issuer or its agent (e.g., a tender agent) for purchase. The tender date may be established under the bond contract or may be specified by the issuer upon the occurrence of an event specified in the bond contract. The purchase price typically is at par. This term is sometimes referred to as a mandatory put.
A form of remuneration received by a municipal securities dealer when purchasing securities as principal from a customer. Mark-down generally is considered to be the differential between the prevailing market price of the security at the time the municipal securities dealer purchases the security from the customer and the lower price paid to the customer by the municipal securities dealer.
A process whereby the value of a security for accounting purposes is adjusted to reflect its current market value. Certain regulatory requirements mandate that municipal securities dealers carry positions at prices that reflect current market values. Issuers or their agents also must generally adjust the value of securities held in a debt service reserve fund or other bond-related fund to reflect current market value.
A form of remuneration received by amunicipal securities dealer when selling securities as principal to a customer. Mark-up generally is considered to be the differential between the prevailing market price of the security at the time the municipal securities dealer sells the security to the customer and the higher price paid by the customer to the municipal securities dealer.
A bond purchased in the secondary market at a price that is less than the original issue price plus the accreted original issue discount, if any, through the date of purchase. This market discount may be treated differently than original issue discount for federal income tax purposes.
A document stating the general terms and conditions under which anissuer can issue more than one series of bonds or obligations. Typically, an issuer will enter into a supplemental indenture in connection with each series of bonds issued under a master indenture.
A resolution adopted by an issuer setting forth the general terms and conditions under which the issuer can offer more than one series of bonds. Typically, an issuer will adopt a series resolution in connection with each series of bonds issued under a master resolution.
The date the principal of a municipal security becomes due and payable to the bondholder.
An amortization schedule listing the maturity dates and maturity values of each maturity of an issue of bonds.
The principal amount that will be received at the time asecurity is redeemed at its maturity. On most securities the maturity value is the par value; on capital appreciation and zero-coupon bonds, however, the maturity value is the compound accreted value at maturity.
The highest permissible rate for a municipal security as specified in the bond contract.
Bonds issued in minimum denominations of less than $5,000 and often with minimum denominations of less than $1,000.
The lowest denomination of an issue that can be purchased as authorized by the bond documents. Typically, municipal bonds have a minimum denomination of $5,000, but some issuers may impose a higher minimum denomination, most commonly in the amount of $100,000.
Securities that are permissible investments for money market funds under SEC Rule 2a-7. Such securities generally have short-term effective maturities, are viewed as having minimal credit risks, and are sufficiently liquid to meet reasonably foreseeable redemptions by shareholders of the money market fund.
A bond that, in addition to its primary source of security, is also secured by a non-binding covenant that any amount necessary to make up any deficiency indebt service will be included in the budget recommendation made to the governing body, which may appropriate funds to make up the shortfall. The governing body, however, is not legally obligated to make such an appropriation.
A municipal security issued by a state or political subdivision to finance restorations/construction on residences for qualified first-time home buyers.
A person or entity (with certain exceptions) that (a) provides advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues, or (b) solicits a municipal entity, for compensation, on behalf of an unaffiliated municipal securities dealer, municipal advisor, or investment adviser to engage such party in connection with municipal financial products, the issuance of municipal securities, or investment advisory services. A municipal advisor may include, without limitation, financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders and swap advisors, to the extent that such persons otherwise meet the requirements of the municipal advisor definition.
A debt security issued by or on behalf of a state or its political subdivision, or an agency or instrumentality of a state, its political subdivision, or a municipal corporation. Municipal bonds, for example, may be issued by states, cities, counties, special tax districts or special agencies or authorities of state or local governments.
A state, political subdivision of a state, or municipal corporate instrumentality of a state, including (a) any agency, authority, or instrumentality of the state, political subdivision, or municipal corporate instrumentality; (b) any plan, program, or pool of assets sponsored or established by the state, political subdivision, or municipal corporate instrumentality or any agency, authority, or instrumentality thereof; and (c) any other issuer of municipal securities.
A municipal security that, but for section 2(b) of the Investment Company Act of 1940, would constitute an investment company. Interests in local government investment pools, 529 savings plans, and ABLE programs are examples of municipal fund securities.
A general term referring to a bond, note, warrant, certificate of participation or other obligation issued by a state or local government or their agencies or authorities (such as cities, towns, villages, counties or special districts or authorities). A prime feature of most municipal securities is that interest or other investment earnings on them are generally excluded from gross income of the bondholder for federal income tax purposes. Some municipal securities are subject to federal income tax, although theissuers or bondholders may receive other federal tax advantages for certain types of taxable municipal securities. Some examples include Build America Bonds, municipal fund securities and direct pay subsidy bonds.
A dealer or bank dealer engaged in the business of effecting principal trades in municipal securities. This term is often used colloquially, and is used in this glossary (unless the context otherwise requires), as a collective term to describe all brokers, dealers and municipal securities dealers engaged in municipal securities activities.
A self-regulatory organization, consisting of representatives of securities firms, bank dealers, municipal advisors, issuers, investors and the public, that is charged with primary rulemaking authority over municipal securities dealers and municipal advisors in connection with their municipal securities and municipal advisory activities. MSRB rules are approved by the SEC, and enforced by the SEC, FINRA and the federal banking regulators depending on the regulated entity.
Bonds issued by special purpose local districts to finance the construction of water, sewer and related facilities. Repayment of the bonds generally is dependent upon the development of theproperties benefited by the improvements.
A subsidiary of Depository Trust and Clearing Corporation (DTCC) that provides clearing, settlement, risk management, central counterparty services, and guarantee of completion for certain transactions for virtually all broker-to-broker trades involving municipal securities, among other products.
Investment of bond proceeds and other related funds at a rate below the bond yield.
The sale of a new issue of municipal securities by an issuer directly to an underwriter or underwriting syndicate selected by the issuer. A negotiated sale is distinguished from a sale by competitive bid, which requires public bidding by the underwriters. Among the primary points of negotiation for an issuer are the interest rate,call features and purchase price of the issue. The sale of a new issue of securities in this manner is also known as a negotiated underwriting.
A method of refunding in which the proceeds of refunding bonds and any other available funds, together with interest earnings thereon, are required to produce sufficient funds to pay debt service on the refunded bonds.
A method of computing the interest expense to the issuer of bonds, which may serve as the basis of award in a competitive sale of a new issue of municipal securities. NIC takes into account any premium or discount applicable to the issue, as well as the dollar amount of coupon interest payable over the life of the issue. NIC does not take into account the time value of money (as would be done in other calculation methods, such as the true interest cost (TIC) method). The term net interest cost refers to the overall rate of interest to be paid by the issuer over the life of the bonds.
An offering made at a specified price or yield without any concession.
Generally, proceeds from the sale of a new issue of municipal securities less costs of issuance.
The amount of money available after subtracting from gross revenues such costs and expenses as may be provided for in the bond contract. The costs and expenses most often deducted are operations and maintenance expenses.
Bonds issued to finance renewable energy projects such as solar, wind and geothermal, among others. In contrast to the original CREBs, at the election of the issuer, the issuer is entitled to receive a direct pay subsidy or the bondholders are entitled to receive federal tax credits. There are also differences between original CREBs and new CREBs with respect to the financing of projects and the level of tax credits.
An automated system operated by DTCC that receives new issue information from an underwriter within two hours after the formal award and immediately disseminates the information to industry participants and information vendors to assist industry participants to report and process trades in new issue securities in an efficient and timely manner.
Municipal securities sold during the initial distribution of an issue in a primary offering by the underwriter or underwriting syndicate, and in subsequent, secondary market trading immediately thereafter.
An entity established by a bank, securities firm or other corporation (such as a depository) to be used as the holder of record for registered securities owned by the bank, securities firm or corporation. Securities are registered in the name of a nominee to avoid the difficulties of registering and transferring securities in a corporate name. This form of registration is satisfactory for purposes of delivery on inter-dealer transactions.
A document executed prior to delivery of anew issue by an issuer or obligor with respect to municipal bonds. Customarily it certifies that there is no litigation pending, threatened, or contemplated that would materially affect the validity orsecurity of the bonds; the issuance, execution or delivery of the bonds; the existence of the issuing entity or obligor; or the validity or legality of provisions authorizing the payment ofprincipal of andinterest on the bonds.
A bond that cannot be redeemed at the issuer's option before its stated maturity date.
A term utilized by market participants to characterize opinions by ratings organizations regarding municipal securities. Credits with ratings below specified levels are generally considered to be non-investment grade.
A security that has not be enrated by any of the nationally recognized statistical rating organizations.
A published announcement of the issuer's intention to call some or all outstanding bonds prior to their stated maturity dates.
A document describing the terms established by an issuer for a competitive sale of an anticipated new issue of municipal securities. It generally contains the date, time and place of sale, amount of issue, type of security, amount of any good faith deposit, basis of award, name of bond counsel,maturity schedule, method of delivery, time and place of delivery, and bid form.
A maturity of a new issue of municipal securities that is fully subscribed for or sold prior to the general reoffering of the issue by theunderwriters to the public and therefore is not reoffered to the public by the underwriters.
Any person (including the issuer) legally committed to support payment of all or part of an issue of municipal securities, other than certain unrelated providers of credit or liquidity enhancement.
A party having a financial obligation or arrangement to make the payment of all or part ofdebt service on municipal securities. The obligor is often the issuer but may be a conduit borrower of municipal securities proceeds.
A principal amount of securities that is smaller than what is considered a normal trading unit.
A proposal to sellsecurities at a statedprice or yield.
(1) A document about an issue of municipal securities expected to be offered in the primary market. The document discloses to investors information regarding the securities to be offered. (2) A document prepared and used bymunicipal securities dealers when selling large blocks of previously issued securities in the secondary market.
The price o ryield at which municipal securities dealers offer securities to investors or to other municipal securities dealers.
A document prepared by or on behalf of the issuer of municipal securities in connection with a primary offering that discloses material information on the offering of such securities. Official statements typically include information regarding the purposes of the issue, how the securities will be repaid, and the financial and economic characteristics of the issuer, conduit borrower or other obligated person with respect to the offered securities. Investors and market intermediaries may use this information to evaluate the credit quality of the securities and potential risks of the primary offering.
Provisions in abond contract that permit theissuer to issue additional bonds that have an equal claim on thepledged revenues under certain circumstances (typically upon satisfaction of an additional bonds test).
An official action of the governing body of an issuer, typically enacted by a vote of the members of the governing body at a public meeting. The procedures for enacting an ordinance are often more formal than those for adopting a resolution. For example, in many jurisdictions, an ordinance cannot be finally enacted at the same meeting at which it is introduced, whereas a resolution may often be adopted at the same meeting. Some jurisdictions permit the incurrence of debt through adoption of a resolution while others require enactment of an ordinance.
The discount from par value at the time the bond or other debt is issued. It is the difference between the stated issue price and the redemption price at maturity. The original issue discount is amortized over the life of the security and is generally treated as tax-exempt interest. When the investor sells the security before maturity, any profit or loss realized on such sale is calculated (for tax purposes) on the adjusted book value. The adjusted book value is calculated for each year the security isoutstanding by adding the accretion value to the original offering price. The amount of the accretion value (and the existence and total amount of original issue discount) is determined in accordance with the provisions of theInternal Revenue Code and the rules and regulations of the Internal Revenue Service.
The amount by which the public offering price of a security at the time of its original issuance exceeded its par value. The original issue premium is amortized over the life of the security and results in an adjustment to the basis of the security. Original issue premium generally is not deductible for federal income tax purposes. The amount of original issue premium received by theissuer in a primary offering, also known as the bond premium, is generally treated asproceeds of the issue.
Proceeds of an issue calculated in accordance with Internal Revenue Code that considers the par amount of the bonds, accrued interest, any original issue premium, any original issue discount and fees for any qualifying guarantees or qualifying hedging transactions, etc.
For an original issue discount bond, the expectedyield to maturity on thesecurities based upon the public offering price.
Bonds that have been issued but have not yet matured or been otherwise redeemed. Bonds that have been defeased, however, generally are not considered to be outstanding for purposes of many bond contract provisions, such asbond covenants and security provisions.
A market for securities that are traded other than on a national securities exchange. The over-the-counter market is characterized most particularly by a system of dealers that offer and sell securities. Almost all municipal securities are traded in the OTC market.
A situation with respect to a new issue of municipal securities in which the underwriters have received orders in excess of the principal amount of the securities in the issue or a particular maturity of the issue. If an issue or maturity is oversubscribed, thes enior manager is responsible for allocating the securities in a manner consistent with the priority provisions.
The amount of principal of asecurity that must be paid at maturity. The par value may also be referred to as the face amount of a security.
Two or more issues or series of bonds that have the same priority of claim or lien against pledged revenues or other security. Parity bonds are also referred to as pari passu bonds.
A practice, in violation of securities industry rules, consisting of selling securities to a customer and, at the same time, agreeing to repurchase the securities at a future date with an unbooked transaction (with the transaction later booked as an ostensibly unrelated trade).
A delivery on a transaction of less than the total par value amount of securities involved in the transaction.
A refunding of less than alloutstanding bonds of an issue.
An organization that has access to and uses the facilities of a registered clearing agency for the confirmation,clearance and/or settlement of securities transactions.
The principal amount of securities to be underwritten by a particular member of an underwriting syndicate, representing its pro-rata share of the total liability and profits, if any, from the operation of the syndicate.
A practice whereby payments are made in return for business or other benefits.
The entity responsible for transmitting payments of interest and principal from an issuer of municipal securities to the bondholders. The paying agent is usually a corporate trust department of a bank or trust company, but may be the treasurer or some other officer of the issuer or another governmental entity (e.g., a county treasurer acting for a school district or municipality within the county). The paying agent may also provide other services for the issuer such as reconciliation of the securities and interest paid, destruction of paid securities, and similar services. The trustee under abond contract usually also acts as paying agent.
The date on which principal and/or interest is payable on a municipal security.
Bonds issued by a state or local government to finance an unfunded pension liability of the entity.
In the case of municipal fund securities sold to customers under a periodic municipal fund security plan or a qualifying non-periodic municipal fund security program, the monthly or quarterly statement disclosing information about transactions effected during such period delivered to customers.
Encumbrances on title to property pledged as security for an issue that are specifically permitted under the bond contract.
The instruments in which bond proceeds or other funds may be invested pursuant to the provisions of the bond contract.
(1) A municipal securities dealer actingas agent who places anew issue of municipal securities directly with investors on behalf of the issuer. (2) An entity that may be registered as a broker-dealer, investment adviser and/or municipal advisor that solicits municipal entities (e.g., public pension plans) to invest assets of the municipal entity with investment professionals, such as asset managers.
A mortgage-backed bond payable with a fixed sinking fund schedule structured so that mortgage repayments will be sufficient to make all sinking fund payments as scheduled. Typically, one or more additional classes of mortgage-backed securities, also subject to mortgage repayments, are issued in conjunction with PAC Bonds. These additional classes are subject to more volatile rates of repayment, depending upon various factors.
The funds obligated for the payment of debt service and the making of other deposits required by the bond contract. A pledge that all revenues received will be used for debt service prior to deductions for any costs or expenses.
A private activity bond issued by a state or local authority and used to finance the acquisition of pollution control equipment pursuant to federal tax regulations.
An order given to the syndicate manager, prior to the purchase of securities from theissuer that indicates a prospective investor's intention to purchase the securities at a predeterminedprice level. Pre-sale orders, almost exclusively seen in competitive sales, are normally afforded top priority inallocation of securities from the syndicate.
A version of the official statement prepared by or for an issuer of municipal securities for potential customers prior to the availability of the final official statement. Under the securities laws, offers for the sale of or acceptance of securities are not made on the basis of the preliminary official statement and a statement to that effect appears on the face of the document generally in red print.
The amount by which the price paid for asecurity exceeds the security's par value. For tax purposes, the actual amount of premium with respect to a particular security may be affected by the existence of any original issue premium or original issue discount.
A security purchased at aprice in excess of the par value.
A price, in excess of par value (or compound accreted value, in the case of certainoriginal issue discount or zero coupon bonds) and expressed as a percentage ofpar (or compound accreted value), that the issuer agrees to pay upon redemption of its outstanding bonds on a specific date prior to the stated maturity date. The amount of premium to be paid often declines incrementally after the initial premium call date.
The current value of a payment or stream of payments expected to be received in the future discounted at a given interest rate or rates.
Difference expressed in terms of current dollars between the debt service on a refunded bond issue and the debt service on a refunding bond issue for an issuer. It is calculated by discounting the difference in the future debt service payments on the twoissues at a given rate.
The amount to be paid for a bond, usually expressed as a percentage ofpar value but also sometimes expressed as the yield that the purchaser will realize based on the dollar amount paid for the bond. The price of a municipal security moves inversely to the yield.
In a negotiated offering of a new issue of municipal securities, the process by which the issuer andunderwriters determine the interest rates and prices at which the new issue will be offered to the public. The pricing of a new issue typically occurs immediately before or the day preceding the execution of th ebond purchase agreement between the issuer and the underwriters.
The means by which the structure and pricing for a primary offering of municipal securities is disseminated to the syndicate. It is a series of communications between the senior manager and selling group members that establish the terms of the underwriting, the initial pricing, the priority of orders, and the order period for a primary offering of municipal securities.
A term used to refer to a municipal securities dealer that acts as an underwriter for a primary offering of municipal fund securities.
The market for new issues of municipal securities.
An offering of municipal securities directly or indirectly by or on behalf of the issuer, including certain remarketings of municipal securities.
Generally, the face amount or par value of a security payable on the maturity date.
A securities transaction in which a municipal securities dealer effects the transaction for its own account.
An issuer's outstanding issue of municipal bonds. The term is often used in the context of a refunding to denote the obligations being refinanced, sometimes called refunded bonds
A primary offering in which a placement agent sells anew issue of municipal securities on behalf of the issuer directly to investors on an agency basis rather than by purchasing the securities from the issuer and reselling them to investors. Investors purchasing privately placed securities often are required to agree to restrictions as to resale and are sometimes requested or required to provide a private placement letter to that effect.
A document functionally similar to an official statement used in connection with an offering ofmunicipal securities in a private placement. Circulation of a private placement memorandum often is strictly controlled to avoid distribution to investors who may not be qualified to purchase the securities.
A revenue projection showing anticipated costs and revenue for the period of the projection, generally not more than five years.
A predetermined process of selecting bonds for redemption based on the bondholders proportionate share of the outstanding principal amount.
The total of all of the various components of the underwriter spread that is associated with the pricing of a new issue.
A municipal securities dealer engaged by an issuer of auction rate securities to receive orders for the auction rate securities during a Dutch auction and to submit such orders directly to the auction agent for the auction rate securities.
An entity retained by a state sponsor of a 529 savings plan to manage the program.
A fund (sometimes referred to as a construction fund) under the bond contract in which bond proceeds and other available funds are deposited pending disbursement to pay costs of the financed project.
An indication of what the credit quality of an issue is expected to be after a construction or interim period is concluded. The provisional rating does not, however, represent a judgment of what might happen if problems are experienced during the construction or interim period, or of the likelihood of such problems occurring. Provisional ratings are typically assigned when thedebt service on an issue is secured solely by revenues to be derived from a project whose construction is financed by the issue; the rating remains provisional until the construction is completed and the project has begun to generate the revenues. These types of ratings are sometimes referred to as conditional ratings.
A generic term for a wide variety of financial arrangements whereby governmental and private entities agree to transfer an ownership interest of, or substantial management control over, a governmental asset to the private entity in exchange for upfront or ongoing payments.
A bid in the secondary market entered to purchase bonds subject to conditions set forth by either party to the transaction. For example, the purchaser might stipulate that a legal opinion acceptable to it must be available on thesecurity or that the bid is only valid if the seller can guarantee delivery by a certain date; similarly, the seller might impose certain requirements.
A private activity bond that meets certain requirements under theInternal Revenue Code in order for the interest thereon to be excluded from gross income for federal income tax purposes. Also sometimes referred to as a qualified private activity bond.
Any expense related to the designated beneficiary of an ABLE account incurred as a result of living with blindness or a disability. Qualified disability expenses include education; housing; transportation; employment training and support; assistive technology and personal support services; health, prevention and wellness; financial management and administrative services; legal fees; expenses for oversight and monitoring; funeral and burial expenses; and other expenses.
Bonds issued to finance energy conservation projects. At the election of the issuer, the issuer is entitled to receive a direct pay subsidy or the bondholders are entitled to receive a federal tax credit in lieu of interest.
Certain costs of higher education specified in Section 529 of the Internal Revenue Code for which investments in 529 plans may be applied on a tax-advantaged basis.
A legal opinion of bond counsel, sometimes referred to as a reasoned opinion, that is conditional or otherwise subject to qualifications. A legal opinion generally is not considered to be qualified if it is subject to customary assumptions, limitations and qualifications or if the opinion is otherwise explained. In the municipal securities market, legal opinions have traditionally been unqualified.
Bond issuance authorized under American Recovery and Reinvestment Act of 2009 for capital improvements and/or the acquisition of land at K-12 schools. At the election of the issuer, the issuer is entitled to receive a direct pay subsidy or the bondholders are entitled to receive a federal tax credit in lieu of interest.
Certain categories of tax credit bonds that must meet the applicable qualified tax credit bond requirements set out in the Internal Revenue Code.
Municipal securities issued to finance projects for certain eligible public schools in conjunction with private business contributions. At the election of the issuer, the issuer is entitled to receive a direct pay subsidy or the bondholders are entitled to receive a federal tax credit in lieu of interest.
An agreement whereby an issuer who anticipates issuing bonds at a future date can effectively lock in a specified interest rate. At the time of issue, the counter-party will make a payment to the issuer if interest rates have increased from the specified interest rate or the issuer will make a payment to the counter-party if interest rates have decreased from the specified interest rate.
A company that provides ratings that indicate such company's opinion of the relative credit quality of securities.
An opinion by a rating agency of the credit-worthiness of a bond.
A method of settling transactions whereby payment on the transaction is made when a delivery of the securities involved in the transaction is received and accepted. The term is used to refer to a transaction settled in this manner where a customer (typically an institutional investor) has sold securities to a municipal securities dealer.
The principle that neither the states nor the federal government may tax income received from securities issued by the other (states may, however, tax theinterest on obligations of other states). The doctrine provides the original basis for the federal income tax exemption on interest paid on municipal securities.
The return by the receiving party of securities previously accepted for delivery. Reclamation may be made by the receiving party or a demand for reclamation may be made by the delivering party if, subsequent to delivery, information is discovered which, if known at the time of delivery, would have caused the delivery not to constitute good delivery.
A communication or other course of action on the part of amunicipal securities dealer with respect to a municipal securities transaction that, depending upon the facts and circumstances, directly or indirectly suggests that an investor should or should not engage in such transaction.
A predetermined date prior to the interest payment date on an issue of registered securities that is used to determine to whom the next interest payment will be made. Persons who are listed as the registered owners of the securities on the record date will receive the interest payment. The record date is usually identified in the bond contract.
Areas designated by the Internal Revenue Service as recovery zones due to economic distress and for which certain categories of municipal securities may be issued.
A category of taxable Build America Bonds to fund infrastructure and facility improvement in areas of significant unemployment and poverty. RZEDBs are direct pay subsidy bonds that provide a higher subsidy rate than other direct pay subsidy BABs.
Tax-exempt private activity bonds issued through December 31, 2010 under the American Recovery and Reinvestment Act (ARRA) enacted in 2009 to make available certain tax benefits to financings in recovery zones.
A process by which theissuer repays to the bondholder of an outstanding security the principal amount thereof (plus, in certain cases, an additional amount representing a redemption premium) and any accrued interest on the security to the date of redemption. Although the term is normally used in connection with the issuer exercising a right under thebond contract to repay the security prior to its scheduled maturity date (often referred to as a call), the payment of a bond at maturity is also a redemption. Redemption provisions in the bond contract for a security may provide the issuer the right to retire the debt fully or partially before the scheduled maturity date.
An amount paid to the bondholder called for redemption in addition to the principal amount of (and anyaccrued interest on) the security. Redemption premiums typically are paid only in the case of certain optional redemptions.
Bonds issued to defease outstanding bonds.
An organization, registered with the Securities and Exchange Commission pursuant to Section 17A of the Securities Exchange Act of 1934, that provides specialized systems for the confirmation, comparison ,clearance and settlement of securities transactions.
The person or entity in whose name a municipal security's ownership is registered under the bond contract.
A person associated with a broker-dealer who has qualified by one or more examinations to perform certain regulated activities, including the sale of securities to customers.
The person or entity responsible for maintaining records on behalf of theissuer that identify the owners of a registered bond issue. The trustee under a bond contract often also acts as registrar.
Trade with respect to which settlement will occur based on the normal settlement cycle for the security being traded. The normal settlement cycle for municipal securities is defined in MSRB rules and may be accelerated or extended for a specific transaction by agreement of the parties.
An agreement whereby the issuer of municipal securities and/or an obligor with respect to such securities agrees to reimburse the issuer of a letter of credit providing credit enhancement or liquidity for the securities for any draws made on the letter of credit to pay amounts owing on the securities.
A resolution declaring an issuer's official intent to reimburse an original expenditure with proceeds of an obligation. Under federal tax laws, an issuer may not generally reimburse itself with proceeds of tax-exempt bonds for certain expenditures made more than 60 days prior to the issuer adopting an official intent.
The risk that interest rates may be lower than the yield on a fixed income security when the owner seeks to reinvest interest income received from the security. The term also sometimes refers to the risk that principal repayments on such a security may be paid prior to maturity (e.g., early redemption), thereby forcing the owner to seek reinvestment of principal at a time when interest rates may be lower than the rate that was payable on the security.
Refusal to accept securities that have been presented for delivery. Securities may be rejected if thecontra-party fails to make good delivery.
A municipal securities investment portfolio,arbitrage account or related accumulation account of an underwriter or its affiliate.
The process of reselling securities to the public that have been tendered for purchase by the previous owners thereof, typically in connection with variable rate demand obligations or other short-term municipal securities.
A municipal securities dealer responsible for reselling to investor ssecurities (such as variable rate demand obligations and other tender option bonds) that have been tendered for purchase by their owner. The remarketing agent also typically is responsible for resetting the interest rate for a variable rate issue and may act as tender agent.
The fee paid by an issuer or a borrower to a remarketing agent for providing rate setting and remarketing services.
The prices and/or yields, listed by maturity, at which new issue securities are offered for sale to the public by the underwriter.
In the case of a new issue of municipal securities, the process by which the interest rates and/or public offering prices are changed from the rates and/or prices established during the initial pricing, generally as a result of substantially higher or lower investor interest in the new issue than initially expected or significant changes in market conditions.
A formal process by which an issuer or obligated person may gather written information from professionals for the purpose of selecting underwriters, financial advisors, attorneys, architects and providers of other services.
The re-evaluation of a rating on a security, typically upon a material change in the credit underlying the security (e.g., anadvance refunding or change in credit enhancement). In the secondary market this typically applies to prerefunded bonds.
(1) The official action of the governing body of an issuer, typically adopted by a vote of the members of the governing body at a public meeting. (2) The term may also refer to the official action of an obligor.
(1) A repricing of a new issue of municipal securities, although in some cases a restructuring involves more significant modifications to the structure of the new issue than a typical repricing, including changing the principal amounts and/or maturity schedule of the offering. (2) In the workout of a defaulted issue of municipal securities, the modification of the terms of, or security for, the issue.
The number of bonds allotted/allocated at the outset of the order period to members of a syndicated negotiated offering.
A bond that is payable from a specific source of revenue. Pledged revenues may be derived from operation of the financed project, grants, or excise or other specified non-ad-valorem taxes. Generally, no voter approval is required prior to issuance of such obligations. Only the revenue specified in the bond contract is required to be used for repayment ofinterest and principal.
A fund, typically created with bond proceeds and/or grant funds, that makes loans to borrowers and uses loan repayments to make additional loans.
A matching pair of purchase and sale transactions in a municipal security executed by a municipal securities dealer as principal under circumstances where such matched transactions effectively eliminate principal risk to the municipal securities dealer.
(1) Payment of maturing commercial paper with a new issue of commercial paper. (2) The transfer of all or a portion of an existing 529 savings plan account into a different 529 savings plan account.
A principal amount of securities that is considered a normal trading unit.
A provision of a rule or regulation that outlines certain steps that, if followed, will be viewed as compliant with the applicable portion of the rule or regulation.
A municipal security payable from pledged sales taxes.
A bid, typically in a competitive new issue offering, where the terms are not disclosed until a pre-determined time and date.
Credit enhancement acquired fo rbonds trading in the secondary market.
Trades in securities other than during the initial distribution of new issues by the underwriter or underwriting syndicate.
Disclosure by or on behalf of an issuer or any obligated persons of outstanding municipal securities following the initial issuance of municipal securities of information material to an investment decision relating to such securities. Secondary market disclosures provided under continuing disclosure agreements as well as other continuing disclosures are posted on the Electronic Municipal Market Access (EMMA) system.
Federal securities legislation originally enacted in 1933 that provides for, among other things, the registration of securities with the Securities and Exchange Commission and the preparation and distribution of prospectuses. Issuers of municipal securities are generally exempt from these requirements, although certain anti-fraud provisions under the Securities Act apply to such issuers.
Federal securities legislation originally enacted in 1934 that provides for, among other things, the regulation of the marketplace for securities. Regulation of broker-dealer activities in the municipal securities market is primarily effected through the rules of the MSRB, which was created under Section 15B of the Securities Exchange Act. In addition, certain SEC rules, including but not limited to Rule 10b-5 and Rule 15c2-12, apply to transactions in municipal securities.
A non-profit corporation created by the Securities Investor Protection Act of 1970 under which investors are partially insured against the possibility of loss resulting from the insolvency of a broker-dealer.
Generally, an instrument evidencing debt of or equity in a common enterprise in which an investment is made on the expectation of financial return. The term includes notes, stocks, bonds,debentures or other forms of negotiable and non-negotiable equities or evidences of indebtedness or ownership.
The specific revenue sources or assets of an issuer or borrower that are pledged or available for payment of debt service on a series of bonds, as well as the covenants or other legal provisions protecting the bondholders.
A term used in connection with variable rate bond financings whereby the issuer or conduit borrower agrees to repurchase with its own capital bonds that have been tendered but not yet remarketed without procuring a third-party liquidity facility. In this instance, the issuer or conduit borrower uses its own funds to purchase securities.
Debt that is to be repaid exclusively from specified pledged revenues.
An agreement between a selling dealer and a primary distributor providing for the sale to customers by the selling dealer of municipal fund securities.
A municipal securities dealer, other than a primary distributor, that sells municipal fund securities to customers pursuant to a selling agreement. Selling dealers are most commonly used in connection with 529 savings plans.
Agreement where by municipal securities dealers may participate in the distribution of a new issue of municipal securities as members of a selling group without being members of the underwriting syndicate.
Bonds having the priority claim against pledged revenues superior to the claim against such pledged revenues or security of other obligations.
Bonds of an issue that mature in consecutive years or other intervals and are not subject to mandatory sinking fund provisions.
Bonds of an issue sharing the same lien on revenues and other basic characteristics. A series of bonds may consist of serial bonds, term bonds or both.
A resolution adopted by an issuer in connection with the issuance of one or more series of additional bonds under a master resolution. The series resolution often will constitute the award resolution for such bonds.
The date on which settlement is scheduled to occur. This date is used in price and interest calculations.
A potential new issue of municipal securities for which no definitive offering date has been set.
Credit assessment by a rating agency that is not published. An issuer typically uses this rating when negotiating with an insurer or other credit enhancer.
An interest payment for a period shorter than the standard six months.
A trading inventory position reflecting a sale by a municipal securities dealer of securities that it did not own at the time of sale.
A sale of securities that the selling party does not own. A selling municipal securities dealer is obliged to go into the market and subsequently purchase the securities from a third party in order to make delivery on this transaction.
(1) A designation given to maturities of a serial issue typically having maturities of shorter than three years from issuance. (2) A bond or note that matures in three years or less. However, depending upon the context, a shorter period to maturity may be intended (e.g., nine or 13 months).
A separately identifiable department or division of a bank that engages inmunicipal securities activities.
A written representation placed by an authorized person on the assignment or bond power attached to a registered certificated security. The guarantee affirms that the person who signed the assignment or bond power is the person in whose name the securities are registered or is authorized to act on behalf of such person and that the signature is genuine. The signature guarantee provides assurance to the transfer agent that thetransfer is proper and can be completed.
A colloquial term for a term maturity of a bond issue that is subject to sinking fund redemptions.
A table, commonly included in an official statement, identifying the source from which such funds are derived, including bond proceeds and other available funds, and the application of such funds in connection with a new issue of municipal securities.
A charge imposed against a property in a particular locality because that property receives a special benefit by virtue of some public improvement, separate and apart from the general benefit accruing to the public at large. Special assessments may be apportioned according to the value of the benefit received, rather than merely the cost of the improvement.
An obligation payable from revenues of a special assessment.
Single-purpose or limited-purpose units of government formed under state enabling legislation to meet certain local needs not satisfied by existing general purpose governments in a given geographical area.
A bond secured by a limited revenue source or promise to pay.
An alternate term for extraordinary redemption.
A bond secured by revenues derived from one or more designated taxes other than ad valorem taxes. For example, bonds for a particular purpose might be supported by sales, cigarette, fuel or business license taxes.
A lawyer or law firm employed to give an opinion that the interest on tax-exempt bonds qualifies for exclusion from gross income of thebondholders thereof for federal income tax purposes.
An assignment of different ratings on anissue ofmunicipal securities by two or more rating agencies.
The narrowing of relative spreads between different types of securities, such as municipal securities vs. U.S. government securities, securities with different ratings, revenue bonds vs. general obligation bonds, securities issued in different sectors.
A practice, generally used in the equity market in connection with certain public offerings in which an underwriter posts an open bid for securities at a stated price, or purchases such securities in the secondary market if the offering price declines below a certain level. Stabilization is intended to maintain an orderly market for the securities during the underwriting and to prevent sharp fluctuations in the market for the securities due simply to supply factors.
A form of liquidity for bonds, usually an agreement with a third party such as a bank in which the third party agrees to purchase variable rate demand obligations tendered for purchase in the event that they cannot be remarketed. Unlike a letter of credit, a standby bond purchase agreement contains termination events and is not an unconditional obligation to purchase variable rate demand obligations and does not guarantee the payment ofprincipal and interest by the issuer.
Bonds on which the fixed interest rate periodically changes (generally by increasing) over their life on specified dates and at specified interest rates. Also called dual coupon bond.
The act of amending or supplementing the information provided in an official statement on a new issue during the primary offering disclosure period. The amendment typically provides current information regarding new developments affecting the issuer or the issue and/or updated or corrected information regarding matters already discussed in the official statement. The definition arises from the practice in past years of actually attaching a sticker with the additional information to the official statement. Modern stickering usually takes the form of a separate supplemental document.
The registration of municipal securities in the name of amunicipal securities dealer or nominee. Securities registered in this manner generally can betransferred more easily than securities with other forms of registration and are considered to be in good delivery form for purposes of inter-dealer transactions.
A specific price at which a specific option or other derivative contract can be exercised.
An order for serial bonds in successive maturities in a new issue underwriting.
Separate Trading of Registered Interest and Principal Securities (STRIPS) consist of an ownership interest in a specified principal amount of a Treasury security that has been separated (stripped) at issuance of the right to receive any interest payments thereon, or an ownership interest in a specified amount of any such stripped interest payment coming due on a specific interest payment date. In either case, the owner of the STRIPS will receive a single payment upon maturation of the STRIPS. STRIPS have the economic and trading characteristics of a zero coupon bond.
The commonly known name for SLM Corporation (formerly known as Student Loan Marketing Association, SLMA or Sallie Mae). SLM Corporation is a publicly traded financial services company specializing in education, whose operations include originating and servicing student loans. SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.
A bid oroffer that is subject to change or confirmation at a later date.
A term that refers to payments that are subject to approval from time to time by the governing body of an issuer or obligated person. Such governing body is not required to approve such payments.
Terms used to describe a variety of financing arrangements in which governmental entities borrow money without executing documents or entering agreements that constitute debt for state constitutional and statutory restrictions on the incurrence of debt, such as debt limits or requirements for referendum approval of debt incurrence. Common forms include leasing arrangements or the issuance of bonds through a related conduit issuer. The critical common characteristic is that the obligation of the borrowing entity to pay debt service is not absolute but instead is conditional on the applicable governing body choosing each year to appropriate funds for debt service payment.
A colloquial term for a term maturity, usually from asingle family mortgage revenue issue with several term maturities, that will be the first bonds to be called from asinking fund into which all proceeds from prepayments of mortgages financed by the issue are deposited. The maturity's priority status under the call provisions means that it is likely to be redeemed in its entirety well before the stated maturity date. Therefore, the super sinker maturity may be considered attractive to investors because it offerslong-terminterest rates on what is effectively ashort-term security.
Additional interest payments added to a new issue security to provide compensation to the underwriters or provide additional yield to other investors.
An agreement entered into by an issuer that supplements the issuer's outstanding indenture or bond contract. Often, a supplemental indenture is executed in connection with theissuance of one or more series of additional bonds under the master or bond contract. In some cases, a supplemental indenture amends terms of the master or bond contract without providing for the issuance of additional bonds.
A third-party instrument that provides security against a default in payment. Surety bonds are sometimes used in lieu of a cash deposit in a debt service reserve fund.
(1) A generic term used to describe a broad range of derivative products, including but not limited to interest rate swap contracts. (2) A sale of asecurity and the simultaneous purchase of another security for purposes of enhancing the investor's holdings. The swap may be used to achieve desired tax results, to gain income or principal, or to alter various features of a bond portfolio, including call protection,diversification or consolidation, and marketability of holdings.
An option held by one party that provides that party the right to require that a counter-party enter into a swap contract on certain specified terms.
In the pricing of a negotiated sale of a new issue of municipal securities, the coupon rate on a selected maturity of the new issue that is adjusted in order to more precisely achieve or maximize the final production for the issue. An underwriter preparing to bid on acompetitive sale of a new issue also may adjust a swing coupon to more precisely achieve or maximize the final production on its bid.
A group of underwriters formed to purchase (underwrite) a new issue of municipal securities from the issuer and offer it for resale to the general public. The syndicate is organized for the purposes of sharing the risks of underwriting the issue, obtaining sufficient capital to purchase an issue and broadening the distribution channels of the issue to the investing public. Most syndicates are generally structured as undivided (eastern) accounts, in which the liability for any unsold portion of the issue according to each member's percentage participation in the syndicate, rather than divided (western) accounts.
A document, also known as an agreement among underwriters, sent by the syndicate manager on a competitive new issue to the syndicate members establishing the syndicate rules, including the rights, duties and commitments of the senior manager and the other syndicate members with respect to the new issue of municipal securities being underwritten including the priority of allocating securities and the member's participations, among other matters.
A sales agreement that requires the purchaser to pay the seller a minimum amount whether or not goods or services are available and, if available, whether or not the purchaser uses them. This type of contract is often used in financings for utilities. For example, in electric power sales contracts, payments will be made by the purchasers to the electricity wholesaler whether or not the power supply projects are complete or operational. Such payments are not conditioned upon the performance of the wholesaler, the completion or operation of the power project or the use of the goods or services.
A transaction that fully liquidates an investor's position in a given security.
Compulsory charge levied by a government unit for the purpose of raising revenue. Taxes are imposed under a government's taxing power and are distinguishable from special assessments, which are levied according to the benefits received, and from fees, which bear a reasonable relation to the costs of administration, services provided or regulation.
The total property and resources available to a governmental entity for taxation.
A provision in the bond contract requiring the redemption of the bonds if it is determined that the interest on the bonds does not qualify as exempt interest to the bondholders under the Internal Revenue Code.
Municipal securities that entitle the bondholder to receive, in lieu of interest payments, a credit against federal income tax.
A municipal security the interest on which is excluded from gross income for federal income tax purposes. Such interest may or may not be exempt from state income or personal property taxation in the jurisdiction where issued or in other jurisdictions. If interest on the bond is also exempt from state income tax, it is described as double exempt and if such interest is also exempt from municipal, local income or other special taxes it is described as triple exempt. In some cases, interest on the bonds is subject to the alternative minimum tax. Interest on some municipal bonds is not exempt from federal, state or local taxes.
A bond payable from the incremental increase in tax revenues realized from any increase in property value and other economic activity, often designed to capture the economic benefit resulting from a bond financing. Tax increment bonds, also known as tax allocation bonds, often are used to finance the redevelopment of blighted areas.
The amount of tax stated in terms of a unit of the tax base; for example, 10 mills per dollar of assessed valuation of taxable property.
The maximum rate or millage of tax that a local government may levy by law. This limit may apply to taxes raised for a particular purpose or for all purposes; to a single government, or class of governments; or to all governments operating in a particular area.
The official list showing the amount of taxes levied against each taxpayer or parcel of property, prepared and authenticated in proper form to warrant the collecting officers to proceed with administering the tax.
Long-term indebtedness payable from property tax revenues.
The sale of asecurity at a loss and the simultaneous purchase of another similar security. By creating a loss, the tax swap reduces the investor's current tax liability. The tax swap may also serve purposes similar to those of other types of swaps. There are specific Internal Revenue Service regulations governing tax swaps.
The interest rate that must be received on a taxable security to provide the bondholder the same after-tax return as that earned on a tax-exempt bond. Because interest earned on municipal securities generally is not subject to federal income taxation, a tax-exempt bond does not have to yield to a bondholder as much as a taxable security to produce an equivalent after-tax yield; this differential is attributable to the effect of the tax liability incurred by the bondholder if it held a taxable security. The taxable equivalent yield varies according to the bondholder's marginal federal income tax bracket and, where applicable, any state or local tax liability as well.
A bond, sometimes referred to as a Cinderella Bond, initially issued on a taxable basis and that will convert to tax-exempt status upon the occurrence of a specified condition precedent (e.g.,volume cap allocation becoming available or certain refundings).
Municipal securities the interest on which is included in gross income for federal income tax purposes. In some cases, municipal securities are initially issued on a tax-exempt basis but subsequent events (e.g., failure to comply with arbitrage requirements or change in use of proceeds to a non-qualifying purpose) may cause the Internal Revenue Service to declare the issue taxable.
A bond or other security that does not qualify for an exclusion from gross income under federal tax law. Corporate, U.S. government debt and agency securities generally are federally taxable. In some cases,municipal securities also are taxable under federal tax law.
Acronym for Tax Equity and Fiscal Responsibility Act of 1982. As a pre-condition for the exclusion from gross income for federal income tax purposes ofinterest on all qualified private activity bonds, TEFRA requires, among other things, that the issue be approved (a TEFRA approval) either by an elected official or body of elected officials of the applicable governmental entity after a public hearing (a TEFRA hearing) following reasonable public notice (a TEFRA notice) or by voterreferendum of such governmental entity.
The surrender of a security to the issuer or its agent (e.g., a tender agent) for purchase. A tender may be mandatory or optional.
(1) In the case of tender option bonds, an agent of the issuer to whom bondholders tender their bonds upon a mandatory or optional tender. In many cases, the tender agent will also act as the remarketing agent for the bonds. (2) In the case of a tender offer, abroker-dealer or bank responsible for coordinating the process of soliciting bondholders.
A proposal by an issuer or another party offering to purchase all or a portion of outstanding bonds of an issue, or one or more maturities of an issue, over a specified period.
Obligations, also known as put bonds or puttable securities, that grant thebondholder the right to require theissuer or a specified third party acting as agent for the issuer (e.g., a tender agent) to purchase the bonds, usually at par, at a certain time or times prior to maturity or upon the occurrence of specified events or conditions. The put option or tender option right is typically available to the investor on a periodic (e.g., daily, weekly or monthly) basis. Typically, these securities are floating or variable rate securities, with the put option exercisable on dates on which the floating rate changes. These latter securities are often called variable rate demand obligations, or, colloquially, lower floaters.
Bonds that come due in a single maturity whereby the issuer may agree to make periodic payments into a sinking fund for mandatory redemption of term bonds before maturity or for payment at maturity.
The time the underwriter plans to execute its first transaction in the new issue.
The time at which an issuer of a new issue of municipal securities becomes contractually committed to the underwriter, by means of the formal award, to the issuance and sale of the new issue.
An advertisement placed by underwriters announcing the terms of a new issue of municipal securities, setting forth some or all of the following information: the name of the issuer, maturities, interest rate, reoffering scale, ratings and members of the underwriting syndicate.
A swap designed to transfer the credit exposure of an asset between parties in which all investment earnings from a particular asset are exchanged for payments based on an established rate or rate-setting mechanism.
The date on which a buyer and seller effect a transaction in securities.
One of a number of related securities offered as part of the same transaction. Typically seen in certain types of securities, such as housing revenue bonds and commercial paper.
The process of changing the registered owner of asecurity by (a) updating the list of registeredbondholders of anissue and (b) if the security is certificated, issuing a new securities certificate (or, in some cases, reissuing the old certificate) with the new registered owner's name imprinted on it.
The person or entity that performs the transfer function for anissue of registered municipal securities. This person or entity may be the issuer, anofficial of the issuer or a third party engaged by the issuer to act as its agent. The trustee under abond contract often also acts as transfer agent.
Under the Internal Revenue Code, unspent proceeds of a refunded issue that are allocated to a refunding issue when the proceeds of the refunding issue are used to pay the principal of the refunded issue. When refunded proceeds are transferred or allocated to a refunding issue, the refunded proceeds and any investments become subject to yield restriction andrebate at theyield on the refunding issue or yield reduction payments in lieu of rebate (sometimes referred to as a transferred proceeds penalty).
The ability of the public and market participants to be able to discover information about a security, such as price, interest rates, yield, supporting documentation and material disclosures. The public dissemination of information relating to transactions inmunicipal securities is designed to improve price transparency.
Under this method of computing the interest expense to the issuer of bonds, true interest cost is defined as the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the new issue of bonds. Interest is assumed to be compounded semi-annually. TIC computations produce a figure slightly different from the net interest cost (NIC) method because TIC considers the time value of money while NIC does not. Also known as Canadian Interest Cost.
An underwriter's bid that takes into account both the total dollar amount of interest payments and the timing of the interest and principal payments.
Reference to an arrangement in which the lessee acquires use, but not ownership, of leased property and the lease term is shorter than the asset's useful life. The lessee may have an option to purchase the property, but such a purchase must be made at the property's fair market value when the option is exercised.
A financial institution with trust powers, designated by the issuer or borrower, that acts, pursuant to a bond contract,for the benefit of the bondholders in administering certain terms of the bond contract. In many cases, the trustee also acts as custodian, paying agent, registrar and/or transfer agent for the bonds.
A statement of the bid and offer prices at which a municipal securities dealer would be willing to effect a transaction in a security. Some municipal securities dealers make two-sided markets on larger, term bond issues. Generally, two-sided markets are made in actively traded bonds and rarely made in inactively traded bonds.
In the case of asecurity for which credit enhancement has been obtained, the rating assigned by a rating agency to such security, on a stand-alone basis, without regard to credit enhancement.
The process of purchasing all or any part of a new issue of municipal securities from the issuer and offering such securities for sale to investors.
A municipal securities dealer that purchases a new issue of municipal securities from the issuer for resale in a primary offering. The underwriter may acquire the securities either by negotiation with the issuer or by award on the basis of competitive bidding.
A term that refers to either the agreement among underwriters or the bond purchase agreement, depending upon the particular new issue of municipal securities.
For purposes of SEC Rule 15c2-12, the period in connection with a primary offering of municipal securities ending on the later of the closing of the underwriting or the sale of the last of the securities by the syndicate. Rule 15c2-12 obligates an underwriter to send the final official statement for a primary offering to any potential customer, upon request, from the time the final official statement becomes available until the earlier of 90 days from the end of the underwriting period or the time when the official statement is available to any person from the Municipal Securities Rulemaking Board through the Electronic Municipal Market Access (EMMA) system, but in no case less than 25 days following the end of the underwriting period.
A bond payable from ad valorem taxes that are not limited by law in rate or amount.
A legal opinion of bond counsel that does not contain any qualifications. An unqualified legal opinion is frequently distinguished from a qualified or reasoned opinion expressing a lesser degree of confidence by the counsel delivering the opinion. A legal opinion generally is not considered to be qualified if it is subject to customary assumptions, limitations and qualifications or if the opinion is otherwise explained. In the municipal securities market, legal opinions generally are unqualified.
An order from a customer resulting from a communication initiated by the customer to a municipal securities dealer requesting to effect a transaction in a specific security.
The raising of a bond rating by a rating agency due to the improved credit quality of the issue.
(1) A procedure followed in certain states whereby the legality of a propose dissue of securities may be determined, often through a court proceeding, in advance of its issuance. (2) A procedure whereby a certificate or coupon issued in physical form that has been torn or otherwise damaged is endorsed as being a valid or binding obligation of the issuer. Validation of damaged certificates is normally done by the issuer or its agent (e.g., the paying agent, trustee,registrar or transfer agent); validation of damaged coupons may also be done by a commercial bank.
Floating rate obligations that have a nominal long-term maturity but have a coupon rate that is reset periodically (e.g., typically daily or weekly) by the remarketing agent. The investor has the option to put the bond back to the tender agent at any time with specified notice (e.g., seven days). The put price is par plus accrued interest. These securities typically are supported by a liquidity facility, (i.e., letter of credit, stand by bond purchase credit or self-liquidity), which assists in making these securities money market fund eligible.
An oral agreement between the issuer and the underwriter to the terms of sale of a new issue of municipal securities, pending the formal award.
In a refunding or other defeasance, a report prepared by a certified public accountant or other independent third party that verifies the yield of the investments held in escrow in connection with an advance refunding bond issue and demonstrates that the cash flow from investments purchased with the proceeds of the refunding bonds and other funds held in escrow are sufficient to pay the principal of and interest on the refunded bonds that are being defeased.
The total dollar volume of municipal securities expected to be offered over the next 30 days. The visible supply, which is compiled and published by the trade publication The Bond Buyer, indicates the near-term activity in the municipal market.
A debt security issued in certain jurisdictions that is often issued to pay project costs as they are incurred.
A transaction in which securities are sold for the purpose of establishing a tax loss but are reacquired (or a substantially identical security is acquired) within 30 days prior to or 30 days after the date of the sale. Under such circumstances the deduction of the loss for tax purposes would be deferred.
A price at which a municipal securities dealer states its potential willingness to purchase securities. A municipal securities dealer giving a workable is free to revise its price for the securities if market conditions change.
In cases where the market value of securities has declined since their acquisition for accounting purposes, the difference between the cost at which the securities were acquired and their current market value.
The annual rate of return on an investment, based on the purchase price of the investment, its coupon rate and the length of time the investment is held. The yield of a municipal security moves inversely to the price.
In an advance refunding, the sale to an issuer of securities (typically Treasury securities) at above-market prices to be held in escrow for the purpose of reducing the yield on those securities to avoid arbitrage regulations. The SEC and Internal Revenue Service view such practice as illegal.
A payment permitted by the tax regulations in certain situations made by anissuer to the federal government in order to reduce the yield on investment of bond proceeds to meet yield restriction requirements under the Internal Revenue Code and there by protect the tax-exempt status of the bonds.
A general requirement under the Internal Revenue Code that proceeds of tax-exempt bonds not be used to make investments at a higher yield than the yield on the bonds. The Internal Revenue Code provides certain exceptions, such as for investment of bond proceeds for reasonable temporary periods pending expenditure and investments held in reasonably required debt service reserve funds.
The yield calculation used, in lieu of yield to worst, where bonds are retired systematically during the life of the issue, as is the case with a sinking fund.
The rate of return to the investor earned from payments ofprincipal and interest, with interest compounded semi-annually at the stated yield, presuming that thesecurity is redeemed on a specified call date (if the security is redeemed at a premium call price, the amount of the premium is also reflected in the yield). Yield to call takes into account the amount of the premium ordiscount at the time of purchase, if any, and the time value of the investment.
The rate of return to the investor earned from payments of principal and interest, with interest compounded semi-annually at the stated yield, presuming that the security remains outstanding until the maturity date. Yield to maturity takes into account the amount of the premium or discount at the time of purchase, if any, and the time value of the investment.
The rate of return to the investor, presuming that the security is put back to the issuer or its agent (or a third party) by the investor on a specified date in accordance with the terms of aput option granted by the issuer (or the third party). The investment return reflected in the yield consists of the return of the principal (or the portion of the principal amount payable upon the exercise of the put) and payment of the interest (with the interest compounded semi-annually) to the put date.
The rate of return to the investor earned from payments of principal and interest, with interest compounded semi-annually at the stated yield, presuming that the security is redeemed on the next scheduled sinking fund date.
For a givendollar price on a municipal security, the lowest of the yield calculated to the pricing call,par option or maturity.