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
Banks find it essential to accommodate their client’s requirements to buy or sell foreign exchange forward, in many examples for hedging purposes.  How can the bank eliminate the c

You are required to choose a company for analysis.  This company should be quoted on one of the principal international exchanges.  It may be your own company.  You should then do

Does high operating leverage always mean high business risk?  Explain. High operating leverage doesn't always mean high business risk.  If the company's sales are quite steady

How does the market determine the fair value of a bond? The bond’s fair value is the present value of the bond's coupon interest payments plus the present value of the face value

how is operating cycle applicable to poultrybusiness in Uganda (broilers)

List a few types of non-price rationing systems. (a) Queuing. (b) Favored customers. (c) Rationing coupons.

mini-case chapter 15:payout policy Megginson, Smart, Graham

Q. What do you mean by S Corporation? S Corporation - An S Corporation is a corporation that, under Internal Revenue Code, is normally not subject to federal income taxes. In i

what is the annual tax shield to a firm that has total assets of $80 million and a net worth of $55 million,if the average interest rate on debt is 8.5% and the marginal tax rate i