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GO Bonds (General Obligation Bonds)
Bonds that fund non-revenue producing facilities, are backed by the full faith and credit (taxing power) of theĀ  municipality and require voter approval.
Net direct debt
debt that the municipality obtained on its own. It comes from both GO Bonds and short term municipal notes.
Overlapping Debt
Occurs when several authorities in a geographic region have the ability to tax the same residents
Debt per Capita
debt (overall, direct or overlapping )/# of people in the municipality. The lower this #, the more likely the municipality can pay back its debts.
Ad Valorem taxes
Property taxes - largest source of backing for GO bonds. The higher the accessed value, the more taxes collected and the easier it is to pay back the GO bonds.
Sources for paying back GO Bonds
Ad Valorem taxes (the higher the better), population and population trends (the higher the better ) Tax base (larger tax bases are ideal), Sales per capita (sales taxes), Traffic fines and Licensing fees.
GO Bonds generally have higher ratings and lower yields
Revenue Bonds
Do not need voter approval because they are backed by the revenue from a revenue producing facility, but they require a feasibility study.
Feasability Study
a study done by consultants hired by a municipality prior to issuing revenue bonds to answer the question "does this make sense?" The study includes estimates of revenues that the facility could generate, along with any economic, operating, or engeneering aspects of the project that would be of interest to the municipality.
Rate Covenant
Promises that the municipality will charge sufficient fees to people using the facilities to be able to pay expenses and the debt service (principal and interest on bonds)
Maintenance Covenant
Promises the municipality will adequately take care of the facility and any equipment so the facility continues to earn revenue.
Insurance Covenant
Promises that the municipality will adequately insure the facility
Flow of funds
1) Operation and maintenance
2) Debt service
3) Debt service reserve
4) Reserve maintenance fund
5) Renewal and replacement fund
6) Surplus fund
Net revenue pledge
revenues after paying operation and maintenance expenses are used to pay the debt service
Gross revenue pledge
when the municipality pays the debt service before paying for operations and maintenance expenses.
Debt service coverage ratio
net or gross revenues/principal + interest
Special tax bonds
bonds secured by one or more taxes other than Ad Valorem (property) taxes. These may be backed by sales on fuel, tobacco, alcohol, etc.
Special assessment (special district) bonds
bonds issued to fund the construction of sidewalks, streets, sewers, etc. Backed by taxes only on the properties that benefit from the improvements.
Double-barreled bonds
a combination of GO and revenue bonds. Municipalities issue these bonds to fund revenue producing facilities (toll bridges, water and sewer facilities, etc) but if the revenues taken in aren't enough to pay off the debt, tax revenues make up the deficiency.
Public housing authority bonds (PHAs)
New housing authority bonds (NHAs)
Bonds issued by local housing authorities to build and improve low-income housing. The bonds are backed by U.S. Gov't subsidies and if the issuer can't pay off the debt, the U.S. Gov't makes up any short falls.Considered safest municipal bonds and would recieve S&P credit rating of AAA.
Moral Obligation Bonds
Bonds issued by a municipality, but backed by a pledge from the state gov't to pay off the debt if the municipality can't. These need legislative approval to be issued. The state has a moral, but not a legal obligation to pay off the debt if the municipality can't. These bonds are considered safe.
Municipal Notes
Short term loans that provide financing for a municipality until other revenues are recieved. These typically have a maturity date of one year or less, typically 3-5 months.
Tax Anticipation Notes (TANs)
These notes provide financing for current operations in anticipation of future taxes that the municipality will collect.
Revenue Anticipation Notes (RANs)
These bonds provide financing for current operations in anticipation of future revenues that the municipality will collect.
Tax and Revenue Anticipation Notes (TRANs)
These notes are a combination of TANs and RANs
Bond Anticipation Notes (BANs)
These bonds provide interim financing for the municipality while its waiting for long term bonds to be issued.
Construction Loan Notes (CLNs)
These notes provide financing for the construction of multifamily apartment buildings
Project Notes (PNs)
These bonds provide interim financing for the building of subsidized housing for low-income families
Municipal note credit ratings
Moody's: MIG 1, MIG 2, MIG 3
S&P's: SP-1, SP-2, SP-3
Fitch: F-1, F-2, F-3
Taxable Equivalent Yield
tells you what the interest rate of a municipal bond would be if it weren't tax free.
TEY = municipal yield/(100%-investor's tax bracket)
Municipal Equivalent Yield
the yield on a taxable bond after paying taxes
MEY=municipal yield x (100%-investor's tax bracket)
Triple tax free municipal bonds
Bonds that the U.S. territories (and federal districts) issue are triple tax free (the interest is not taxed on federal, state, or local level). These places include: Puerto Rico, Guam, U.S. Virgin Islands, American Samoa, Washington D.C.

This also applies, in most cases, to municipal bonds issued within your own state.
the tax advantage of municipal bonds only applies to interest recieved. When trading these bonds, you must still pay capital gains taxes.
90 Day Apprenticeship Period
New registered representatives can't engage in any municipal securities business with the public for thier first 90 days in the industry. During this time, a registered rep may deal only with securities professionals such as dealers and they may not recieve commissions during this time. This applies only to municipal securities.
Confirmations of trades
all confirmations of trades must be sent or given to customers at or before the completion of the transaction (settlement date). Municipal securities settle regular way in 3 business days after the trade date. Confirmation includes: broker-dealer's name, address, and phone number, the capacity of the trade (whether the firm acted as a broker or dealer), the dollar amount of the commission (if the firm is acting as a broker), customer's name, bond particulars (issuer, interest rate, maturity date, call features, etc.), trade date, time of execution, settlement date, committee on uniform securities Identification procedures (CUSIP) ID #, bond yield and dollar price, accrued interest, the form of Registration, whether bonds have been precalled or prefunded, any unusual facts about the security.
the brokerage firm has to keep all advertising for a minimum of 3 years, and these ads must be easily accessible for at least 2 years.
The municipal securities rulemaking board (MSRB) requires a principal (manager) to approve alladvertising material of the firm prior to its first use. The principal must ensure that all advertising is accurate and true.
Advertising Includes
Any material designed for use in public media. Offering circulars, market and form letters, summaries of official statements, etc. But NOT preliminary and final official statements because these are prepared by the issuer.
According to the MSRB municipal securities dealers can't give gifts to customers valued at more than $100/year. Business expenses are exempt from this rule.
must be fair and reasonable and can't discriminate among customers. firms should consider: market value of the securities at the time of the trade, total dollar amount of the transaction, difficulty of the trade, the fact that you and the firm you work for are entitled to make a profit.
Sources for Municipal Bond Info
The Bond Buyer
The Bond Buyers Index
the 20-Bond index
measures the avg yield of 20 municipal bonds with 20 years to maturity, all these bonds have a rating of A or better
The eleven bond index
The avg yield of 11 bonds from the 20 bond index with a rating of AA or better
The revenue bond index
the RevDex
the avg yield of 25 revenue bonds with 30 years to maturity with ratings A or better
The municipal bond index
the 40-bond index
the avg dollar price of 40 highly traded GO and Revenue bonds with an Avg maturity of 20 years with a rating of A or better
A wire service provided by subscription to the bond buyer; It provides general info about proposed municipal securities, municipal securities prices, and general info relevant to the municipal bond market. Provides info about new bonds and bonds in the secondary market.
The bond resolution (indeture)
provides investors with the contract terms including coupon rate, years to maturity, collateral backing the bonds, etc.
Legal Opinion
printed on the face of municipal bond certificates, prepared and signed by a municipal bond counsel (attorney). Purpose is to verify that the issue is legally binding on the issuer and conforms to tax laws. may also state that interest recieved from bonds is tax exempt.
A bond stamped ex-legal doesn't contain a legal opinion
Qualified legal opinion
The bond counsel has some reservations about the issue.
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