Can municipal bonds be refinanced?
Issuers should conduct or receive an analysis of how much interest rates would have to rise by the call date to produce savings matching those that could be achieved with an advance refunding. This could result in simply waiting until the call date to refund the bonds. Refunding efficiency.
What is a current refunding?
A current refunding is a transaction in which the outstanding bonds to be refunded are called and paid off within 90 days of the date of issuance of the refunding bonds. There is no federal limitation on the number of times that a bond issue can be refunded on a current basis.
Can you refund a refunded bond?
Indicators: If the proceeds of an issue of refunding bonds are deposited in some sort of fund (typically referred to as an “escrow fund”) for more than 90 days, before being expended to refund any portion of the refunded bonds, then the bonds are advance refunding bonds.
Why would a corporation consider bond refunding?
Bond refunding is particularly common when the bond issuer has experienced a credit rating increase, and so can expect to obtain debt at a lower cost than had been the case when the existing bonds were issued at a lower credit rating.
What is bond refunding is it the same thing as a call?
Explain the difference between calling a bond and a bond refunding. Bond: The freely call provision, the bond can be called anytime before its maturity and will be redeemed by the issuer. Whereas, the deferred call provision allows redeeming the bond only after some fixed period.
Do pre refunded municipal bonds have call protection?
Pre-refunding bonds are typically issued by municipalities, and are secured by high credit-quality investments. However, to encourage investors to purchase callable bonds, these bonds usually have a call protection which prohibits the issuer from calling the bonds for a specific period of time, say five years.
Which is more likely to be refunded municipal bonds?
Future refunding opportunities also depend on the coupons – not the yields – on the bonds to be refunded. Bonds with relatively high coupons (e.g. 5%) are more likely to be refunded than bonds with lower coupons.
What does it mean when a bond is refunded?
Though less frequent, refunding bonds can also be issued to remove or revise burdensome bond covenants or to restructure debt service payments. Refunding bonds are characterized as either current refundings or advance refundings.
Where are the proceeds of advance Refunding bonds?
Advance Refunding Escrow. Proceeds of advance refunding bonds are almost always placed in an escrow account held by a third-party escrow agent. These funds are held until the call date of the refunded bonds and are typically invested so the earnings minimize the cost of the escrow.
What’s the minimum savings required for a refund?
Net present value debt service savings – advance refundings. Minimum net present value (NPV) debt service savings are typically measured in relation to the par amount of the refunded bonds. The minimum savings threshold can be a fixed percent, such as 3% or 5%, and/or a minimum dollar savings threshold.