Series65 MOD 15 Muni Bonds

  1. Municipal Bonds
    • Debt Obligations Issued by State & Local Gvmnts
    • NOT Issued by Federal Government
    • Exempt from Federal Taxation
    • May or May Not be Exempt from State & Local Taxes

    Triple Tax Exempt
  2. Triple Tax Exempt
    • Purchase a Municipal Bond Issued by/in State of Residence
    • Territory Bonds
    • Puerto Rico
    • US Virgin Islands
    • American Samoa
    • Guam
  3. Which of the following will give an investor in the 25% tax bracket the highest yield
    a. Corporate bond yielding 8.4%
    b. Muni bond yielding 6%
    • 6%/(100%-tax bracket)
    • 6%/75%
    • 8%
    • Answer a.
  4. Comparing Taxable to Municipal
    • Net Yield
    • Taxable Equivalent Yield
  5. Compare Muni Bond Yield to Taxable Bond Yield
    Net Yield = Taxable Yield x (100% - Tax Bracket)
  6. Calculate Taxable Equivalent Yield
    Calculate Taxable Equivalent Yield = MUNI yield/ (100% - Tax Bracket)
  7. Types of Municipal Notes
    • Project notes (PN)
    • Tax anticipation notes (TAN)
    • Revenue anticipation notes (RAN)
    • Bond anticipation notes (BAN)
  8. Municipal Notes
    Used for Short Term (safer) financing. Usually 3 months <1 yr
  9. Municipal Bonds are Subject what kind of Tax:
    Capital Gains Tax – Only the Interest is Tax Exempt
  10. Define PNs
    • Project Notes: used for purchase and construction of property for new housing projects
    • Usually <1yr
    • considered very safe
  11. Define BANs
    In anticipation of Issuing a Bond, a BAN can generate immediate revenue to immediately fund a project in the community
  12. Define RANs
    By issuing RANs, municipalities can raise revenue to operate a facility immediately, anticipating aid from Fed/State governments
  13. MIG Rating
    • Moody's Investment Grade
    • Rating Service for Muni Notes (MIG 1, best)
  14. Define TANs
    • Tax Anticipation Notes: Generates money to finance current expenses
    • i.e. School Districts
  15. Define General Obligation Bonds
    • Long term debt Securities backed by the taxing power of issuing Entity
    • Requires Voter Referendum
    • Often have Debt Limits
  16. What are the 3 types of securities issued by Municipalities
    • Municipal Notes
    • General Obligation Bonds (G.O.)
    • Revenue Bonds
  17. Define Revenue Bonds
    Issued to obtain funds to construct public infrastructures. Principal and Interest paid for by revenues of Tolls/fees
  18. Revenue Bonds are classified by Method by which revenue is generated to pay off the bonds:
    • User Fee revenue
    • Tolls and Fees
    • Special Tax
    • Special assessment
    • Industrial Development Bonds (IDRs)
    • Public Housing Auth Bonds
    • Double Barreled Bonds
    • Moral Obligation Bonds
  19. example of Special Assessment Bond
    generates money to purchase specific property for a specific group of users, such as new housing areas (only people living in new area would be assessed)
  20. Example Special Tax bonds
    Principal and interest paid from revenues from special tax on gasoline to pay highway improvements.
  21. Revenue Bonds are backed by
    • Backed by the Revenue from a Specific Project or Facility
    • Toll Roads, Bridges & Sports Arenas
    • NOT Backed by Taxes Require a Feasibility Study & Engineering Report
  22. Industrial Development Revenue Bonds (IDRs)
    • Issued by a Municipality to Assist a Private Company
    • Also Called Private Activity Bonds
    • "Public Benefit"
    • Backed by Lease Payments Pledged by Company
  23. Tax Status of Special Bonds (i.e. IDRs)
    No Local tax on income but is Subject to Alternative Minimum Tax (AMT Bonds)
  24. Double-Barrel Bonds (Special Bonds)
    • Backed by the Revenue of a Project
    • If Revenue is Insufficient, Taxes can be levied
    • (i.e. football/Baseball stadiums)
  25. Define TERM Bonds
    A TERM bond is Muni bond which the whole issue comes due on one date.
  26. A Serial Bond is different than a Serial Bond in that:
    • It has different issuing dates
    • Could be either serial in maturity or term in maturity
  27. Series Bonds
    • Issued in a Series within one or several years
    • Tampa Issues 2014 A in January
    • Tampa Issues 2014 B in June
    • Tamp will Issue 2014 C in September
  28. What is attractive about PUT bonds
    Can be redeemed by purchaser prior to Maturity to invest in higher interest rate bearing bonds. Issuer add this feature to issue lower interest rate bearing bonds
  29. In reference to Maturity, what is the difference between Term vs. Serial bonds
    • Term Bonds have a Single Maturity Date
    • Serial Bonds "Mature" over a Period of Years
    A General Obligation Bond indebtedness that is shared by 2 taxing entities and benefits both areas.
  31. A Muni Bond can be all the following except:

    a. Series and all Term
    b. Series and all Term
    c. Series and Serial
    d. All Term
    • (a.)
    • A series bond can have a term maturity or it can have serial maturity but it cannot be series and all term
  32. FORMULA:
    Calculate NET DIRECT DEBT
    Net Direct Debt=

    • Old Debt + Newly Proposed Debt
    • City Population
  33. Define INDENTURE
    Indenture is a large outline of all the requirements of the issuing municipalities.
  34. Bond Counsel
    A lawyer knowledgeable in legal municipal bonds states that proposed bond is really exempt from FED and State taxes
  35. What is the DEFAULT rating for bonds
    • S & P     = D
    • Moody's = C
    • Agreements (promises) made between Issuer and Purchaser of Bond (i.e.)
    • Rate covenants
    • Insurance covenants
    • Maintenance covenants
    • Revenue pledge covenants
  37. What is Moody's Rating system?
    • High-grade bonds are Aaa and Aa
    • Medium grade are Al, A
    • Baa and speculative are Ba
    • C-rated bonds are usually bonds in default of interest.
  38. Which of the following are S&P ratings:
    a.  Aa
    b.  Aaa
    c.  Bb
    d.  AA
    • (d.)
    • S&P are all CAPS
  39. Define a Sinking Fund
    Money regularly set aside by the issuer to redeem it's bonds periodically as specified in the indenture.
Card Set
Series65 MOD 15 Muni Bonds
Municipal Bonds