![]() ![]() Once a municipal dealer has won the bidding, it is now at risk for the sale of the bonds. Many issuers also require that the bidders also provide the true interest cost (TIC). This calculation takes the time value of money into account. The underwriting contract is awarded to the municipal dealer that submitted the lowest net interest cost (NIC). The firm then writes a scale that shows the coupon rate and yield to maturity of each maturity date. Potential underwriters obtain a copy of the official bid form from the issuer or through the Bond Buyer. The good faith deposit, which specifies the amount of a check (which will be credited toward the purchase of bonds for the winning bidder), which are returned to unsuccessful bidders after the bid is awarded.Ī maturity schedule-in the case of GO bonds, maturities are normally serial, while maturity for a revenue bond is usually term. The invitation to bid, which gives the specifics of exact location and time for bids to be delivered. Identification of the bond counsel (law firm) that prepared the legal opinion. Interest payment dates, including the dated date from which the bonds begin accruing interest. Elements of the notice of sale include:Īmount and type of bonds to be sold and their purpose. The issuer publishes an ad in the Bond Buyer (the principal source of information in the municipal bond primary market). It specifies the put period and put price at which the bonds may be sold back to the issuer. This section describes the put provisions (if any) on the bond. This section of the indenture specifies when, at what price, and by which method (in-whole or in part) calls may be made. The trust indenture specifies the property/ casualty insurance coverage for the facility for repairs or to make a total call on the bonds in case of catastrophic damage. This distinction is a common exam question. Hint: These pledges refer to when debt service is paid. Operations and maintenance expenses take priority. Net revenue pledge: Debt service is paid second from the net revenues. Gross revenue pledge: Debt service is paid first from the gross revenues, operations and maintenance expenses are paid second. The priority of payments under the indenture-what obligation is paid first and second-is described in one of two types of pledges: ![]() Open-end: The issuer may sell additional bonds with equal claim to assets if permitted under the provisions of the additional bonds test described in the indenture. Two types of covenant: Closed-end: The issuer may not issue additional bonds with equal claim to assets unless funds are required to complete construction of the facility. The issuer assures bondholders that user fees will be raised, as necessary, to assure coverage of debt service and expenses.Īll users of the facility must pay the same fees. Note: PHA/NHA bonds are not double-barreled bonds. Public housing authority (PHA)/ new housing authority (NHA) bonds: Backed by rental/lease revenues from low-income public housing, but guaranteed by the full faith and credit of the U.S. Moral obligation bonds: backed by state legislature's assurance that, in case of a shortfall in revenues, the necessary funds will then be appropriated. Special assessment bonds: Backed by assessments made to benefited properties (e.g., sewer and sidewalk bonds). Special tax bonds-backed by special taxes (tobacco, gasoline, hotel/motel) for a specific project or purpose-not by ad valorem taxes. Industrial development revenue bonds (IDRBs): These are backed by corporate lease payments, or corporate credit. Below state level, this primarily means ad valorem (property) taxesĪctual revenues generated by user fees from the project/facilityĭouble-barreled bonds: These have a direct funding source and the ultimate backing of the issuer's taxing power if necessary. States and political subdivisions below the state level, but including commissions, authorities, agencies, etc.įull faith and credit of issuer, or the taxing power of the issuer. States and political subdivisions below the state level, including taxing districts ![]()
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