Series 7: Sec 3 Municipal Securities

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Municipal bonds

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

Loaning money to the issuers for the purpose of public works and construction projects

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Securities exchange act of 1934

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What municipal securities are subject to this antifraud provisions

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territorial possessions of the United States
State governments
Legally constituted taxing authorities

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what 3 entities are legally entitled to issue municipal debt securities

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Sinking fund account

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Established by issuers to accumulate funds to pay off term bonds at or before the established maturity date

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Dollar bonds

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Term bonds are quoted by price and are called

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GOs general obligation bonds

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municipal bonds issued for capital improvements that benefit the entire community

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Full faith and credit issues

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General obligation bonds are known as this becuase of the backing

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Ad valorem

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Bonds issued by towns cities and counties are backed by property

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Double barreled bonds

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revenue bonds that have characteristics of GO bonds

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Conterminous debt

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bonds issuedby different municipal authorities that tap the same taxpayer wallets includes county, city, school district, but NOT state

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Revenue bonds

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can be used to finance any municipal facility that generates sufficient income. Not subject to statutory debt limits and do not require voter approval

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Rate covenant

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a promise to maintain rates sufficient to pay expenses and debt service

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maintenance covenant

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promise to maintain the equipment and facility

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insurance covenant

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a promise to insure any facility built so bondholders can be paid off if the facility is destroyed or becomes inoperable

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additional bonds test

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whether the indenture is open ended or closed ended

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sinking fund

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money to pay off interest and principal obligations

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catastrophe clause

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a promise to use insurance proceeds to call bonds and repay bondholders if a facility is destroyed

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flow of funds

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the priority of disburshing the revenues collected

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books and records covenant

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requires outside audit of records and financial reports

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IDRs or IDBs industrial development revenue bonds

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issued to construct facilitieis or purchase equipment which is then leased to a corporation

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Tax Reform Act of 1986

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under this act the interest on these nonpublic purpose bonds may be taxable because the act reserves tax exemption for public purposes

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Lease rental bonds

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a municipality issues bonds to finance office construction for itself or its state of community

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NHAs New housing authority bonds NHAs

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to develop and improve low income housing these are issued by local housing authorities

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double barreled

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bond must be backed by more than one municipal revenue source

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Moral obligation bond

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state or local issued or state or local agency issued bond

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Legislative apportionment

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only way bondholders are repaid if moral obligation bond goes into default

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PHAs

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Which of the following is backed by the full fiath and credit of the US government

Moral obligation bonds
PHAs
IDRs
Special Tax bonds

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Ad valorem taxes

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All of the folowing are used to provide debt service for revenue bonds except

excise taxes
business license taxes
ad valorem taxes
alcohol taxes

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Municipal anticipation notes

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short term securities that generate funds for a municaplity that expects other revenues soon

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tax anticipation notes TANs

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municipalities issue these to finance current operations in anticipation of future tax receipts

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RANs revenue anticipate notes

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are offered periodically to finance current operations in anticipation of future revenues from revenue producing projects or facilities

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Tax and revenue anticipation notes TRNs

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combination of the characteristics of TAN and RAns

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Bond anticipation notes

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BANs are sold as interim financing that will eventually be converted to long term funding through a sale of bonds

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Tax exempt commercial paper

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often used in place of BANs and TANs

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Construction loan notes CLNs

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issued to provide interim financing for construction of housing projects

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Variable rate demand notes

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fluctuating interest rate and are usually issued with a put option

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GANs grant anticipation notes

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issued with the expectation of receiving grant money from federal government

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Variable rate municiapl bond

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offers interest payments tied to the movement of another specified interest rate

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Reset bonds

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variable rate municipal bonds are called this

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SLGS state and local government securities

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US government securities issued directly by the Treasury to municipal issuers only in connection with pre refundings

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Bond contract

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collection of legal documents that includes a bond resolution or trust indenture, applicable state and federal law, and other legal documents pertaining to that particular issue and issuer

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bond resolution

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municipality authorizes the issue and sale of securities through this

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underlying trust indenture or protectie covenant

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used to make municiapl issue more marketable, serves as contract between bond's issuer and a trustee appointed on behalf of the bond's investors

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flow of funds statement

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establishes the priority of payments made from a facility's revenues

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official statement

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municiapl securities industry's equivalent of the corporate prespectus

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Preliminary official statement

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discloses most of the same material information as the official statement with the exeption of the issue's interest rates and offering prices, used by underwriters as a preliminary official statement to determien investors and dealers interest in the issue

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official statement

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any municipal security dealer involved in sale of a new issue must deliever this

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bond counsel

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attorney specializing in tax exempt bond offerings

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qualified opinion

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there may be a legal uncertainty of which purhcasers should be informed

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unqualified opinion

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issued by the bond counsel unconvditionally

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ex-legal

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allows a bond to meet good delivery requirements without an attached legal opinion

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Legal opinion

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determines whether and how the bonds may be offered

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Negotiation or competitive bidding

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how the terms of the municipal bond offering may be set

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negotiated underwriting

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the municipality appoints an investment banker to underwrite the offering

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30-day visible supply

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total dollar volume of municipal offerings not including short term notes expected to reach the martket in the next 30 days

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ratio indexes

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percentage of new issues sold versus new issues offered for sale the prior week

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syndicates

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an account that helps spread the risk of underwriting an issue among a number of underwriters

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Western account

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a divided account, each underwriter is responsible only for its own underwriting allocation

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Eastern account

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an undivided account, each underwriter is allocated a portion of the issue

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writing the scale

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process of establishing the reoffering yield for each maturity is called

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net interest cost

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common calculation used for comparing bids and awarding the bond issue

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true interes costt

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provides the same type of cost comparison adjusted for the time value of money

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split rate bids

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bids with more than one interest rate

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syndicate account

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created when the issue is awarded

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syndicate manager

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responsible for keeping the books and managing the account

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reoffering price or reoffering yield

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the price at which the bonds are sold to the public

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spread

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the syndicate's compensation for underwriting the new issue

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total takedown

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the portion of the spread that remains after subtracting the management fee

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additional takedown

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the syndicate member keeps the remainder of the total takedown

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concession

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the discount the selling group receives from the syndicate member

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reallowance

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invested firms may buy the bonds from the syndicate at a small discount from the reoffer price

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MSRB municipal securities rulemaking board

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requires syndicates to establish priority allocation provisions for orders

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order period

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the time set by the manger during which the syndicate solicits customers for the issue and all orders are allocate without regard to the sequence in which they were received

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allocation priorities

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become imporatant when a bond issue is over subscribed

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presale order

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entered before the date that the syndicate wins the bid

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group net order

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syndicate member that wants a customer's order to receive priority enters the order as

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designated orders

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the next highest priority for orders received during the order period

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UIT unit investment trust

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member firm enters such an order for its own inventory or related accounts such as for this dealer sponsored

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Pro Golfers Dont Miss

Presale Group Designated Member

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How to remember the normal order allocation priority found is in this

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when issued

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the seucrities are uathorized but not yet issued

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settlement date

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when bonds are ready syndicate manager gives notice of this

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dated date

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the date on which interest begins to accrue

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long coupon

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first interest payment date represented when bond is first issued

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Quantitative analysis

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focuses on objective information regarding a municipality's population, property values, and per capita income

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qualitative analysis

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focuses on subjective factors that affect a munipality's securities

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ad valorem

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per value tax, because the real property tax is based on the property's value

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debt statement

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used in the analysis of GO debt, includes the estimated full valuation of taxable property

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total debt

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the sum of all bonds issued by the municipality

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self supporting debt

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subtracted from total debt

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net direct debt

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includes GOs and short term notes issued in anticipation of taes or for interim financing

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overlapping debt

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disclosed on the debt statement is the city's proportionate share of the county's school district's park disctrict's and sanitary disrtict's debts

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net total debt net overall debt

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sum of the overlapping debt and net direct debt

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revenue bonds

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rated according to a facility's potential to generate sufficient money to cover operating expenses and principal and interest payments

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flow of funds

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the issuer pledges to pay expenses in a specific order

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net revenue pledge

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operating and maintenance expenses are paid first

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revenue fund

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in a net revenue pledge total receipts from operating the facility are usually deposited here

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net revenues

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after operations and maintenance are taken out, remaining funds are called

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gross revenue pledge

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when debt service is paid first the flow of funds is called

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pension liabilities

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municipalities legal obligation to pay retirement benefits to future retirees

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unfunded pension liability

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one where adequate reserves have not been set aside to meet this future obligation

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quotation

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any bid for or offer of municipal securities

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YTM yield to maturity

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municpal bonds are usually priced and offerred for sale based on this rather than dollar price

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bona fide

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quote is considered this when dealer is prepared to trade the security at the price specified in the quote and under the conditions and restrictions accompanying the quote

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workable indication

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reflects a bid price at which a dealer will purchase securities

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nominal or subject, quoatation

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indicates a dealer's estimate of a security market value

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out firm with recall quote

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an example is when a municipal securities dealer may quote a bond price that is firm for a certain time

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National Securities Clearing Corporation NSCC

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municipal securities dealers must report trades with other dealers here

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antireciprocal rule

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rule that dealer cannot solicit trades in municipal securities from an investment company in return for sales by the dealer of shares or units in the investment company

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Suitability test

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applies to discretionary accounts as well as to al other accounts, tax free interest paid by municiapl bonds makes them better suited to those in higher tax brackets

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churning

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practice of increasing commissions through excessive trading

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control relationship

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exists if the dealer controls is controlled by or is under common control with that security's issuer

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principal transaction

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executed at a net price which inclues the markup or markdown

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confirmation

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must describe the security list the trade date settlement date and amount of accrued interest

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advertising

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any material designed for use in the public media

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Tax reform act of 1986

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restriced the federal income tax exemption of interest for municipal bonds to public purpose bonds