Special bond structures, Financial Management

Special bond structures are the municipal securities bearing special security structures. They are of two types - insured bonds and pre-refunded bonds.

  • Insured Bonds: Insured bonds are the bonds secured by the issuer's revenue as well as insurance policies written by the commercial insurance companies. Insurance on a municipal bond is nothing but an agreement by the insurance company to pay the bondholder the amount due on a stated maturity if the issuer defaults on the issue. Once issued, the insurance company cannot cancel its contract for the entire life of the municipal bond.

  • Pre-refunded Municipal Bonds: Bonds originally issued either as revenue bonds or general obligation bonds and later pre-refunded by the issuers are called pre-refunded municipal bonds. Pre-refunding normally occurs when the original bonds are escrowed or collateralized by direct obligations guaranteed by the US government.

For this purpose, a trust is created and all the securities guaranteed by the US government are placed into it. In the trust, the securities are arranged in a manner that cash-flows from these securities match the issuer's obligations to pay. When these cash-flows match with the issuer's obligations to pay, then the pre-refunded bonds no longer are secured as the general obligations or revenue bonds. The reason is - these bonds are secured by the cash flows held in the escrow account. This matching of cash flows with the issuer's obligation renders these municipal bonds with less credit risk and makes them the safest municipal bonds.    

Posted Date: 9/8/2012 6:56:18 AM | Location : United States







Related Discussions:- Special bond structures, Assignment Help, Ask Question on Special bond structures, Get Answer, Expert's Help, Special bond structures Discussions

Write discussion on Special bond structures
Your posts are moderated
Related Questions
Q. Illustrate about foreign exchange earnings? In theory foreign exchange earnings must not be hedged as the chances of an adverse movement are equivalent to those of a favoura

What are the advantages or benefits of a currency options contract as a hedging tool compared with the forward contract? Answer:  The major advantage of by using options contra

Post-acquisition Effect on EPS If the consideration is completely in shares, one of the effects would be a dilution in EPS suffered by Predator Company. The effect of dilution

Eurodollar U.S. currency held on deposit in banks located outside the United States, mainly in Europe. Eurodollars are mostly used for settling international transactions outs

a) Describe five factors that should be taken into account by a businessman in making the choice between financing by short-term and long-term sources.

Ashok is to receive an amount of Rs. 15,00,000 from his relative after 3 years. He wants to buy a house for which he wants the money to be paid now. His relative had al

LKL PLC Project VZ (a) Cash Flow budget and NPV WORKINGS

Restrictions on Investments: A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer, which are rated not below investment

In the telecom industry of the Australia, these are some most important organizations such Vodafone Austrelia‎, TransACT Capital Communications, Optus, and Telstra. Vodafone A