Ch. 3

Front 1

Municipal Bonds

Back 1

Securities issued either by state or local government or by US territories, authorities, and special districts.

Front 2

Doctrine of Reciprical Immunity

Back 2

Established by the Supreme Court in 1895 to offer the benefit of favorable tax treatment for purchasers of municipal debt.

Front 3

Manicipal security Range of time?

Back 3

One year to 30 years

Front 4

Sinking Fund Account

Back 4

Issuers establish such accounts to accumulate funds to pay off term bonds at or before the established maturity date.

Front 5

Dollar Bonds

Back 5

Quoted by price (like corporate bonds) are also called Term Bonds

Front 6

What does GO Bond Standfor and what type of bond is it?

Back 6

General Obligation Bond: Municipal bonds issued for capital improvements that benefit the entire community.

Front 7

What pays the interest and principal on GO bonds?

Back 7

The municipal issuer tax's

Front 8

Limited Tax GO bond

Back 8

a bond secured by a specific tax. The risk is therefore higher than GO's with the full taxing power.

Front 9

The term Coterminous

Back 9

"living together"
term applies in the context of municipal securities, when two issuers overlap debt in the same geographic area.

Front 10

Double Barrel Bonds

Back 10

Revenue Bonds that have characteristics of GO's; however they are backed by the taxing powers.

Front 11

Revenue Bonds

Back 11

Used to finance a municipal facility that generates sufficient income which it uses to pay principal and interest.

Front 12

Trust Indenture (bond resolution)

Back 12

Printed on certain bonds which empowers the trustee to act on behalf of bondholders.
Created to supervise the issuers compliance with the bond covenants.

Front 13

Rate Covenant

Back 13

a promise to maintain the equipment and facilities.

Front 14

Maintenance covenant

Back 14

a promise to maintain the equipment and facilities

Front 15

Insurance Covenant

Back 15

a promise to insure facilities to pay bondholders incase the building is destroyed.

Front 16

Open ended bonds

Back 16

Allows further issuance of bonds with the same status and equal claim on revenues

Front 17

closed ended bonds

Back 17

Allows no further issuance of bonds with the same status or equal claims on revenues can be issued.

Front 18

lease rental bonds

Back 18

When a municipality needs to raise money to construct a building such as a school, then leases the school to the school district which it saves and uses as a backing for repayment of bonds.

Front 19

Special Tax Bonds

Back 19

Bonds that are supported by one or more taxes other than ad valorem (property) taxes. Such as sales, tobacco, fuel, or business licenses.

Front 20

NHA Bonds Stand for what and are?

Back 20

New Housing Authority Bonds; Local housing authorities issue NHA's to develop and improve low income housing. Backed by the full faith and credit of the US government.

Front 21

PHAs are what and are?

Back 21

Public Housing Authority; Same as NHA's.

Front 22

What does MO bonds stand for and what are they?

Back 22

Moral Obligation Bonds; state or local issued, or state and local agency issued, bond. If tax's are not sufficient to pay the debt service, the state legislature has the authority to pay the rest. It is a moral obligation only.

Front 23

Variable Rate Municipal Bond

Back 23

Offers interest payments tied to the movements of another specified interest rate, because coupon changes the market value of the bond stays relatively stable.

Front 24

TANs

Back 24

Tax anticipation notes: Short term securities that have maturities that range from three months to three years.

Front 25

RANs

Back 25

Revenue anticipation notes: offered periodically to finance current operations in anticipation of future revenue

Front 26

TRANs

Back 26

Tax and revenue anticipation notes: Combination of characteristics of TANs and RANs.

Front 27

BANs

Back 27

Bond anticipation notes: Sold as interim financing that will eventually be converted to long-term funding through the sale of bonds.

Front 28

Tax-exempt commercial paper

Back 28

often used in place of BANs and TANs for up to 270 days, though maturities are most often 30, 60, and 90 days.

Front 29

CLNs

Back 29

Construction loan notes: issued to provide interim financing for the construction of housing projects.

Front 30

Bond contract

Back 30

A contract between the underwriter of, and prospective investors in, its securities. The contract showing that the issuer has agreed to abide by the terms and covenants in the documents that compose the bond contract.

Front 31

Flow of funds statement

Back 31

A statement establishing the priority of payments made from a facility's revenues.

Front 32

official statement

Back 32

serves as a disclosure to potential investors informing them specific information about the issue.

Front 33

Funded debt

Back 33

corporate bonds with maturities of five years or more.

Front 34

Municipal securities

Back 34

debt obligations of state and local governments and their agencies.

Front 35

Coupon

Back 35

Interest Rate

Front 36

book entry bonds

Back 36

bond owners do not receive certificates. rather, the transfer agent maintains the security's ownership record.

Front 37

sinking fund

Back 37

established by a corporation or municipal issuer-trust indentures often require a sinking fund which can be used to call bonds, redeem bonds at maturity, or buy back bonds in the open market.

Front 38

Tender offer

Back 38

issuer sometimes offer a tender offer to bond holders to purchase back their bonds at a premium if the current interest rates are down.

Front 39

put or puttable

Back 39

this option lets the bondholder sell back bonds to issuer at face value at any time.

Front 40

nominal yield or coupon yield

Back 40

a fixed percentage of the bonds par value.

Front 41

CY or Current Yield

Back 41

measures a bonds coupon payment relative to its market price.

Front 42

YTM or yield to maturity

Back 42

the annualized return of the bond if held to maturity

Front 43

Yield Curve

Back 43

The difference between the short and long term bonds of same quality.

Front 44

morgage bonds

Back 44

the highest priority among all claims on assets pledged as collateral. relatively safe.

Front 45

Collateral trust bonds

Back 45

issued by corporations that own securities of other companies as investments. A corporation issues bonds secured by a pledge of those securities as collateral.

Front 46

ETC's or Equipment Trust Certificates

Back 46

Railroads, airlines, trucking companies, and oil companies use ETC's, or equipment notes and bonds, to finance the purchase of capital equipment.

Front 47

Unsecured bonds

Back 47

no specific collateral backing and are classified as either debentures or subordinated debentures.

Front 48

Debentures

Back 48

backed by the general credit of the issuing corporation, and a debenture owner is considered a general creditor of the company. Are below secured bonds and above subordinated debentures and preferred and common stock.

Front 49

Subordinated Debentures

Back 49

generally offer higher yields than either straight debentures or secured bonds because of their subordinate status, often have conversion features.

Front 50

guaranteed bonds

Back 50

backed by a company other than the issuer, such as a parent company.

Front 51

income bonds

Back 51

used when a company is reorganizing and coming out of bankruptcy. Income bonds pay interest only if the corporation has enough income to meet the interest payment and if the BOD declares a payment.

Front 52

Zero-coupon Bonds

Back 52

Sold at a deep discount, does not pay interest and matures at par.

Front 53

Trust Indenture act of 1939

Back 53

requires corporate bond issues of 5 million or more sold interstate to be issued under a trust indenture.

Front 54

Convertible bonds

Back 54

corporate bonds that may be exchanged for a fixed number of shares of issuing company's common stock.

Front 55

conversion price

Back 55

the stock price at which a convertible bond can be exchanged for shares of common stock

Front 56

Conversion rate

Back 56

the number of shares a bond maybe converted into.

Front 57

forced conversion

Back 57

occurs when an issuer calls its convertible bonds and it is clearly in the best interest of bondholders to convert their bonds rather than let them be called away.

Front 58

T-bills

Back 58

short term obligations issued at a discount and matures at par, therefore no payments are made.

Front 59

T-notes

Back 59

pays interest every six months, sold at auction every four weeks.

Front 60

T-bonds

Back 60

long term securities (10-30 years) that pays interest every six months.

Front 61

STRIPS

Back 61

zero coupon, backed by US gov.

Front 62

TIPS

Back 62

helps protect investors against purchasing power risk, issued with fixed interest payments.

Front 63

CMO's

Back 63

Collateralized Mortgage Obligation-mortgage backed securities. a pool of mortgages is structured into maturity tranches.

Front 64

PO's and IO's

Back 64

Principal only-Interest only CMO's

Front 65

Money market securities

Back 65

debt securities with maturities of one year or less. Highly Liquid. Largely safe because of short term.

Front 66

CD's

Back 66

Certificates of Deposite-guaranteed by banks-fixed interest payments-some can be traded on the secondary market.

Front 67

Federal funds rate

Back 67

the rate the commercial money center banks charge each other for overnight loans of $1 million or more.

Front 68

Prime Rate

Back 68

the interest rate that large US money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans. Each Bank sets its own prime rate.

Front 69

Discount rate

Back 69

the rate the federal reserve charges for short-term loans to member banks.

Front 70

Eurodollars

Back 70

US dollars deposited in banks outside the US.

Front 71

GO's

Back 71

General obligation bonds-municipal bonds issued for capital improvements that benefit the entire community. Principal and interest paid by taxing powers of the city or state.

Front 72

Coterminous Debt

Back 72

Debt that is overlapped and taxed twice by either a city and a county.

Front 73

Double Barreled bonds

Back 73

revenue bonds that have characteristics of GO bonds. Interest and principal are paid from a specified facilities earnings.

Front 74

Revenue Bonds

Back 74

used to finance any municipal facility that generates sufficient income. Not subject to statutory debt limits.

Front 75

IDR's or IDB's

Back 75

Industrial Development Revenue Bonds-issued to construct facilities or purchase equipment, which is then leased to a corporation.

Front 76

Special Tax Bonds

Back 76

secured by one or more designated taxes other than ad valorem taxes. Such as sales, tobacco, fuel, or business license taxes.

Front 77

Special Assessment Bonds

Back 77

issued to finance the construction of public improvements as such as streets, sidewalks, or sewers.

Front 78

NHA's

Back 78

New Housing Authority Bonds-issued to develop and improve low-income housing. Backed by the US Gov.

Front 79

Moral Obligation Bonds

Back 79

A state or local issued, or state or local agency-issued, bond. Backed by moral obligation not law to repay if in default.

Front 80

Municipal Anticipation Notes

Back 80

short term securities that generate funds for a municipality that expects other revenues soon. Usually has 12 month maturities, although may range up to three years.

Front 81

RAN's

Back 81

Revenue anticipation notes-offered periodically to finance current operations in anticipation of future revenues.

Front 82

TAN's

Back 82

Tax anticipation notes-to finance current operations in anticipation of future tax receipts.

Front 83

TRAN's

Back 83

Tax and Revenue anticipation notes- combination of the characteristics of both TAN's and RAN's.

Front 84

BAN's

Back 84

Bond Anticipation notes-sold as interim financing that will eventually be converted to long term funding through a sale of bonds.

Front 85

Tax-Exempt Commercial paper

Back 85

often used in place of BAN's and TAN's for up to 270 days, though maturities are most often 30, 60, and 90 days.

Front 86

CLN's

Back 86

Construction loan notes- issued to provide interim financing for the construction of housing projects.

Front 87

Variable Rate demand notes

Back 87

have fluctuating interest rate and are usually issued with a put option.

Front 88

GAN's

Back 88

Grant anticipation notes- issued with the expectation of receiving grant money from the federal government.

Front 89

Reset bonds

Back 89

Variable rate municipal bonds, their price remains near par at all times because their coupon is usually reset to the market rate of interest every six months.

Front 90

SLGS

Back 90

State and Local Government SEcurities Series-US government securities issued directly by the Treasury to municipal issuers only in connection with pre-refundings.

Front 91

Bond contract

Back 91

municipal issuer enters into a bond contract with the underwriters of, and prospective investors in, its securities.

Front 92

Sydicates

Back 92

A group of investment bankers that spread the risk of selling a large issue for an issuer for a price.

Front 93

MSRB

Back 93

Municipal Securities Rulemaking Board

Front 94

Churning

Back 94

When a RR makes commissions through excessive trading. Specifically Prohibited.