Municipal bonds are investments purchased by all types of investors such as “mom and pop” retail, banks, money managers, investment advisors, hedge funds, insurance companies, and even
governmental agencies. Municipal bonds are typically sold under one of three sale methodologies: competitive, negotiated and private sales.
Many municipalities had utilized tax-exempt advanced refundings for debt service savings through interest cost reductions and debt restructuring. The loss of this valuable tool is a blow to the many agencies who acted as good stewards of their limited repayment resources. The beneficiaries of these savings ranged from taxpayers to operating budgets to obligors of the debt. While districts may still advance refund bonds, they now have to do so with taxable bonds, and taxable bonds are more expensive than tax-exempt bonds.
Read MoreThere is currently a tax bill moving through the branches of the Federal government, the Tax Cuts and Jobs Act, which may change the individual tax brackets, tax credits, corporate tax rates, and the estate tax, among many other things. What is less discussed is a provision of the tax bill which may have significant reverberations in the municipal bond community: the removal of tax-exempt advanced refundings.
Read MoreWhile there are many types of municipal bonds such as GO bonds and revenue bonds, these bonds are generally issued as either current interest bonds or capital appreciation bonds. A common misconception is that current interest bonds pay both regular interest and regular principal. This is not true. Multiple current interest bond maturities though could be structured such that principal is amortized more regularly.
Read MoreA common misconception of CABs is that it’s a balloon payment whereas current interest bonds are not. This is not always true as a current interest bond could also have one large principal payment due out in the future. Similar to current interest bonds, CAB maturities could be structured such that principal is amortized more regularly.
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Chet Wang is a registered municipal advisor with an exclusive focus on California education municipal bonds.
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