# Introduction to Bond Math Presentation to CDIAC

Size: px
Start display at page:

## Transcription

1 October 2, 2008 Peter Taylor, Managing Director, Public Finance Department Matthew Koch, Vice President, Public Finance Department Introduction to Bond Math Presentation to CDIAC

2 Agenda Agenda I. What is a Bond? II. III. IV. Key Concepts of Municipal Bonds Yield Curve Fixed vs. Variable Rate Debt V. Amortization Structures VI. VII. Key Calculations from a Bond Sale Question and Answer

3 What is a Bond?

4 What is a Bond? What is a Bond? A bond is a debt instrument that allows issuers to finance capital needs. It obligates the issuer to pay to the bondholder the principal plus interest. A buyer of the bond is the lender or investor. A seller of the bond is the borrower or issuer. When an investor purchases a bond, he is lending money to a government, municipality, corporation, federal agency or other entity. In return for buying the bond, the issuer promises to pay the investor a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it matures, or comes due. In addition to operating covenants, the loan documents require issuer to spend the bond proceeds for the specific projects. Among the types of bonds an investor can choose from are: U.S. government securities, municipal bonds, corporate bonds, mortgage and asset-backed securities, federal agency securities and foreign government bonds, among others. A bond can also be thought of as a contract between the issuer and investor. This contract specifies, for example, the terms of the bonds, the funds from which debt service will be paid and any operating covenants. 1

5 Source of Repayment for Debt Service What is a Bond? General Obligation ( GO ) Bonds are secured by a pledge of the issuer s full faith, credit and taxing power. The full faith and credit backing of a General Obligation bond implies that all sources of revenue, unless specifically excluded, will be available to pay debt service on the bonds. Appropriation Bonds are secured by a promise to pay with legislatively approved appropriations. These are generally supported by the General Fund of issuer, unlike General Obligation bonds where funds are often not paid from the General Fund. Examples include Certificate of Participation (COPs) and Leased Revenue Bonds (LRBs). Revenue Bonds are payable from a specific stream of revenues, such as a user fee or dedicated tax, and are not backed by the full faith and credit of the issuer. They are issued to finance specific enterprises or projects and are usually secured solely by revenues from those projects. Revenue bonds can generally be grouped into the following categories: Utilities Higher Education, Healthcare and Other Not-For-Profit Housing Transportation Industrial Development, Pollution Control, and Other Exempt Facility Bonds Securitized Revenue Bonds 2 2

6 Bond Covenants and Other Security Features of Revenue Bonds What is a Bond? Rate Covenants - Under a rate covenant, the issuer pledges that rates will be set at a level sufficient to meet operation and maintenance expenses, renewal and replacement expenses, and debt service. An alternative form of rate covenant requires that rates be set so as to provide a safety margin above debt service, after operation and maintenance expenses are met. Example: The Board will fix, charge and collect fees so that the Revenues will at all times be sufficient in each Fiscal Year to pay Operating and Maintenance Expenses and to provide funds at least equal to 115% of (1.15 times) the Principal and Interest Requirements. Additional Bonds Test (ABT) - Protects existing bondholders from the risk that their security will be diluted by the issuance of additional debt. The Additional Bonds Test must be met by the issuer in order to borrow additional debt secured by the same revenue source as the outstanding bonds. Example: The Net Revenues in each of the two Fiscal Years immediately preceding the date of issuance of such proposed Additional Bonds must be equal to at least 130% of the estimated Annual Debt Service for the year following the proposed issuance. 3

7 Bond Covenants and Other Security Features of Revenue Bonds (cont.) What is a Bond? Debt Service Reserve Fund - Provides a cushion to make timely debt service payments in the event of temporary adversity. Federal law limits the amount of tax-exempt bond proceeds that can be used to fund the debt service reserve fund to the lesser of: 10% of the principal amount of the issue; Maximum annual debt service; and 125% of average annual debt service on an issue. May also be required for appropriation debt. Many times a DSRF is not required for highly rated credits (e.g. UC Regents and CSU). Other Covenants - Additional covenants might include a provision for insuring the project, a review by an independent auditor, or a prohibition against the sale of the project s facilities prior to repayment of outstanding debt, among others. 4

8 Uses of Bond Proceeds What is a Bond? New Money Bonds issued to provide new or additional funding for a project. Refunding Bonds issued to refinance certain existing bonds (proceeds used to repay old bonds). Refundings can be used to produce savings, restructure debt service or release the issuer from restrictive operating covenants. 5

9 Key Concepts of Municipal Bonds

10 Key Concepts Basic Terminology Key Concepts of Municipal Bonds Principal Debt Service Maturity Original Issue Discount Serial Bonds Original Issue Premium Term Bonds and Sinking Funds Bond Proceeds Coupon Capital Appreciation Bonds Yield Callable Bonds Price Insurance Interest Bond Conventions 6

11 Principal and Maturity Key Concepts of Municipal Bonds Maturity - Date on which principal payments are due Typically, maturity dates are generally no longer than 30 years Most bond issues have principal maturing each year until the final maturity date of the series Principal - Also known par amount, or face value, of a bond to be paid back on the maturity date Typically, bonds are sold in \$5,000 principal denominations, often \$100,000 for variable rate bonds Maturity Date Principal 1/1/2011 \$8,705,000 1/1/2012 \$9,005,000 1/1/2013 \$9,325,000 1/1/2014 \$9,685,000 1/1/2015 \$10,170,000 1/1/2016 \$10,705,000 Total \$57,595,000 7

12 Serial and Term Bonds Bonds can either mature annually (serial bonds) or as term bonds. Key Concepts of Municipal Bonds A term bond is a series of sequential amortizations. Payments of principal prior to the term bond s final maturity are referred to as sinking fund payments. Maturity Date Principal Coupon 1/1/2011 \$8,705, % 1/1/2012 \$9,005, % Serial Maturities 1/1/2014 \$9,685, % 5.00% 1/1/2016 \$10,705,000* 5.25% 1/1/2015 \$10,170,000* 5.25% Total * \$57,595,000 Term Bond *Sinking fund payment 8

13 Coupon, Interest and Debt Service Key Concepts of Municipal Bonds Coupon - Percentage rate (based on principal/par amount) of annual interest paid on outstanding bonds Can be fixed or variable Interest - Cost of borrowing money for the issuer Usually paid periodically - Semi-annually for fixed-rate bond - More frequently for variable-rate bonds Interest is calculated by multiplying principal by coupon (adjusted for length of period between interest payments) Debt Service - Sum of all principal and interest on a bond Year Principal Coupon Interest Debt Service 2010 \$2,563,713 \$2,563, \$8,705, % \$2,563,713 \$11,268, \$9,005, % \$2,259,038 \$11,264, \$9,325, % \$1,943,863 \$11,268, \$9,685, % \$1,580,188 \$11,265, \$10,170, % \$1,095,938 \$11,265, \$10,705, % \$562,013 \$11,267,013 Total \$57,595,000 \$12,568,466 \$70,163,466 9

14 Bond Pricing Key Concepts of Municipal Bonds Price Discounted present value of debt service on an individual maturity. Debt service is calculated using the coupon and discounted at the yield. Debt Present Value to Date Principal Coupon Interest Service 1/1/2009 at 3.82% 1/1/2009 7/1/2009 \$1.75 \$1.75 \$1.72 1/1/2010 \$1.75 \$1.75 \$1.69 7/1/2010 \$1.75 \$1.75 \$1.65 1/1/2011 \$ % \$1.75 \$ \$94.33 Total \$ \$7.00 \$ \$99.39 Price \$99.39 Par Amount \$8,705, Purchase Price \$8,651,

15 Bond Pricing (cont.) Key Concepts of Municipal Bonds As a result, price and yield move in opposite directions. Yield Price Coupon 11

16 Par, Discount and Premium Bonds Key Concepts of Municipal Bonds Par Bonds Yield Price Coupon equals yield Purchase price equals principal amount Coupon Discount Bonds Yield Coupon less than yield Purchase price less than principal amount Price Coupon Premium Bonds Coupon greater than yield Purchase price greater than principal amount Yield Price Coupon 12

17 Par, Discount and Premium Bonds (cont.) Key Concepts of Municipal Bonds Maturity Date Principal Coupon Yield Price 1/1/2011 \$8,705, % 3.82% /1/2012 \$9,005, % 3.85% Discount Bonds 1/1/2013 \$9,325, % 3.90% Par Bond 1/1/2014 \$9,685, % 3.94% /1/2016 \$20,875, % 4.02% Premium Bonds Total \$57,595,000 13

18 Original Issue Discount and Original Issue Premium Key Concepts of Municipal Bonds Original Issue Original Issue Maturity Date Principal Price Premium Discount Proceeds 1/1/2011 \$8,705, (\$53,188) \$8,651,812 1/1/2012 \$9,005, (\$88,519) \$8,916,481 1/1/2013 \$9,325, \$9,325,000 1/1/2014 \$9,685, \$461,781 \$10,146,781 1/1/2016 \$20,875, \$1,553,100 \$22,428,100 Total \$57,595,000 \$2,014,881 (\$141,707) \$59,468,174 14

19 Capital Appreciation Bonds (CABs) Key Concepts of Municipal Bonds CABs pay no periodic interest until maturity. The bonds accrete in value as interest accrues. Usually sold as serial bonds, but can be structured as term bonds. At maturity an amount equal to the initial principal invested plus the interest earned, compounded semiannually at the stated yield, is paid. They are sold in denominations of less than \$5000 representing their present value and pay \$5000 at maturity. Though CABs are often more expensive (sold at a higher yield) than current interest bonds, they are used to achieve particular debt service patterns. Example: A CAB maturing in 2011 may have a par amount of \$90,595 but will have a value of \$100,000 when it matures. The difference between \$100,000 and \$90,595 represents the interest on the bond. Accreted Value of CAB from Delivery to Maturity \$102,000 \$100,000 \$98,000 \$96,000 \$94,000 \$92,000 \$90,000 1/1/2009 7/1/2009 1/1/2010 7/1/2010 1/1/2011 CAB Accreted Value 15

20 Callable Bonds Key Concepts of Municipal Bonds Callable bonds can be redeemed by an issuer before their actual maturity on and after a specified call date (an optional redemption provision). Many times, fixed-rate bonds will be callable 10 years after issuance at a price of par. Historically, many municipal bonds were sold with 10-year call features where the bond was callable at 102 and declined to par by the 12th year. Municipal bonds are sold with embedded call features to provide restructuring flexibility and/or refinancing savings in the future. Investors charge the issuers for this flexibility through a higher yield and lower price thereby increasing the cost of the financing at the time of issuance. Issuers need to weigh this increased flexibility and the possibility of savings down the road against this increased cost. 16

21 Bond Insurance Key Concepts of Municipal Bonds Issuers purchase bond insurance in order that debt service will be paid even if there are insufficient revenues. In exchange for this, investors will pay a higher price (lower yield) for an insured bond. Premium paid upfront, based on original debt service schedule; no credits for refundings or early repayment of bonds. Payments by insurer are a loan or an advance that have to be paid back Not like property or health insurance A form of credit enhancement The cost of an insurance policy needs to be compared to the observed market spread between insured and uninsured bonds. It makes sense to only insure those maturities for which the cost of the policy is less than 'cost' of issuing uninsured bonds. The market for bond insurance has changed significantly over the last year. For example, several insurers have been downgraded. Also, it is unclear what the effects of Moody s move to a Global Scale will be on bond insurance. 17

22 Bond Conventions Basis Point Key Concepts of Municipal Bonds Yields on bonds are usually quoted in terms of basis points, with one basis point equal to one onehundredth of 1 percent..50% = 50 basis points Day Count 30/360 Usually for tax-exempt fixed rate bonds Actual/Actual Usually for tax-exempt variable rate bonds Pricing Truncate to 3 decimals 18

23 Yield Curve

24 Maturity (Years) Yield Curve: Normal Yield Curve Upward-Sloping (Normal) Yield Curve Yield 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0%

25 Maturity (Years) Yield Curves: Flat and Inverted Yield Curve Flat and Inverted Yield Curves Yield 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0%

26 Current Yield Curve Compared to Yield Curves from One and Two Years Ago Yield Curve Yield 5.0% U.S. Treasury Yield Curve: 9/1/2006, 9/1/2007 and 9/1/ % 4.0% 3.5% 3.0% 2.5% 2.0% Maturity (Years) 9/1/2006 9/1/2007 9/1/

27 Fixed vs. Variable Rate Debt

28 (YTD) Fixed and Variable Rate Debt Issuance Fixed vs. Variable Rate Debt Total Municipal Debt Issuance, 1990-Present Billions \$500 \$ \$ \$ \$250 88% 85% 342\$ % % 79% 79% 73% 289 \$200 \$ % 76% 84% \$ % 90% % % 86% 85% 86% 77% 68% \$50 \$0 Fixed Rate Variable Rate 22

29 Fixed vs. Floating-Rate Bonds Fixed vs. Variable Rate Debt Fixed Rate Bonds Advantages No Interest Rate Risk - Budget Certainty No Ongoing Credit Support Needed Traditional Investors Include: Bond Funds, Insurance Companies, Arbitrage Accounts, Trust Departments and Retail Investors Disadvantages Higher Initial and Expected Interest Expense Less Flexible Call Feature than Floating Rate Bonds Potentially Higher Issuance Costs Fixed rate financings remain the most common approach in the current market. Variable Rate Bonds Advantages Easy to Restructure Lower Expected Cost of Capital Used to Diversify Debt Portfolio Traditional Investors Include: Money Market Funds, Corporations and Retail Investors Interest Rate Risk Disadvantages Budgeting Uncertainty Unpredictable Pricing of Support Costs Additional Administrative Involvement Given the Fed s recent rate increases, variable rates have increased from their historical lows two years ago, with SIFMA recently resetting at 1.84%. This compares to a 20-year average of 3.15%. 23

30 Credit Enhancement for VRDBs Fixed vs. Variable Rate Debt Credit enhancement is a means of substituting the credit of the issuer with that of a higher rated third party guarantor. Similar to insurance in the case of fixed-rate bond, credit enhancement improves the marketing for bonds. Credit enhancement typically takes the form of bond insurance or letters of credit (LOC). Bond Insurance Letters of Credit (LOC) Several well-established bond insurers. Premium is based on projected total debt service and paid up-front as a one time fee. Typically provided by commercial banks. Premium is based on amount of debt outstanding and paid over time. In effect for life of bond issue. Most LOCs carry an initial term shorter than the term of the bonds and must be renewed or replaced at each expiration date. 24

31 Amortization Structures

32 Alternate Amortization Structures Amortization Structures Issuers can use amortization structures to shape their overall debt structure pattern. Level Principal Level Debt Service Total Debt Total Debt Maturity Date Principal Interest Service Maturity Date Principal Interest Service 1/1/2010 \$2,538,905 \$2,538,905 1/1/2010 \$2,563,713 \$2,563,713 1/1/2011 \$9,620,000 \$2,538,905 \$12,158,905 1/1/2011 \$8,705,000 \$2,563,713 \$11,268,713 1/1/2012 \$9,620,000 \$2,202,205 \$11,822,205 1/1/2012 \$9,005,000 \$2,259,038 \$11,264,038 1/1/2013 \$9,620,000 \$1,865,505 \$11,485,505 1/1/2013 \$9,325,000 \$1,943,863 \$11,268,863 1/1/2014 \$9,615,000 \$1,490,325 \$11,105,325 1/1/2014 \$9,685,000 \$1,580,188 \$11,265,188 1/1/2015 \$9,615,000 \$1,009,575 \$10,624,575 1/1/2015 \$10,170,000 \$1,095,938 \$11,265,938 1/1/2016 \$9,615,000 \$504,788 \$10,119,788 1/1/2016 \$10,705,000 \$562,013 \$11,267,013 Total \$57,705,000 \$12,150,208 \$69,855,208 Total \$57,595,000 \$12,568,463 \$70,163,463 25

33 Impact of Issuing Multiple Stand-Alone Level Debt Service Issues Over Time Amortization Structures Multiple Stand-Alone Level Debt Service Structures Debt Debt Service Service Year Year Series 1995 Debt Service Series 1990 Debt Series Service Series Debt Debt Service Service Series 1995 Debt Series Service 2005 Debt Service 26

34 Principal Amortization Options Wrapped Debt Service Structure Amortization Structures Accelerated/Front-Loaded Debt Service Structure Debt Service Debt Service Year Year Existing Debt Service New Money Debt Service Existing Debt Service New Money Debt Service Deferred/Back-Loaded Debt Service Structure Increasing Debt Service Structure Debt Service Debt Service Year Existing Debt Service New Money Debt Service Year New Money Debt Service 27

35 Key Calculations from a Bond Sale

36 Key Calculations From a Bond Sale Key Calculations from a Bond Sale Sources and Uses of Funds Issuance Expenses Net Debt Service Schedule Yield Calculations 28

37 Sources and Uses of Funds Key Calculations from a Bond Sale Sources: Bond Proceeds Par Amount \$57,595,000 Net Premium 1,873,174 Total Sources \$59,468,174 Uses: Project Fund Deposit \$50,000,000 Other Fund Deposits Debt Service Reserve Fund 5,946,817 Capitalized Interest Account 2,489,242 Delivery Date Expenses Costs of Issuance 500,000 Underwriter's Discount 387,975 Bond Insurance 140,327 Other Uses of Funds Additional Proceeds 3,813 Total Uses \$59,468,174 29

38 Issuance Expenses Key Calculations from a Bond Sale Borrower s Costs of Issuance Rating Agency Fees Issuer/ Authority Fee Bond Counsel Fee Borrower s Counsel Fee Trustee Fees Auditor's Fee Printing and Mailing Costs Miscellaneous and Contingency Components of Underwriters Discount Takedown Management Fee Underwriters Counsel DTC CUSIP BMA Assessment Dalcomp Electronic Order Entry Dalcomp Wire Charge Cal PSA CDIAC Day Loan Out-of-Pocket and Closing Costs Verification Agent (if refunding) 30

39 Net Debt Service Schedule Key Calculations from a Bond Sale Gross Debt Capitalized Net Debt Maturity Date Principal Coupon Interest Service Interest Service 1/1/2010 \$2,563,713 \$2,563,713 \$2,563,713 1/1/2011 \$8,705, % \$2,563,713 \$11,268,713 \$11,268,713 1/1/2012 \$9,005, % \$2,259,038 \$11,264,038 \$11,264,038 1/1/2013 \$9,325, % \$1,943,863 \$11,268,863 \$11,268,863 1/1/2014 \$9,685, % \$1,580,188 \$11,265,188 \$11,265,188 1/1/2015 \$10,170, % \$1,095,938 \$11,265,938 \$11,265,938 1/1/2016 \$10,705, % \$562,013 \$11,267,013 \$11,267,013 Total \$57,595,000 \$12,568,463 \$70,163,463 \$2,563,713 \$67,599,750 31

40 Yield Calculations Key Calculations from a Bond Sale Yield is the discount rate at which the present value of future debt service payments are equal to the proceeds of the issue. The most common measures of the borrowing cost of a bond issue are the arbitrage yield, true interest cost (TIC) and all-in TIC. For short or non-callable issues, each is differentiated by which costs it takes account of. For example Arbitrage Yield TIC All-In TIC Par Value + Premium (Discount) - Credit Enhancement/Insurance - Underwriter's Discount - Cost of Issuance Expense \$57,595,000 1,873, ,327 \$57,595,000 1,873, , ,975 \$57,595,000 1,873, , , ,000 Net Proceeds \$59,327,847 \$58,939,872 \$58,439,872 32

41 Yield Calculations for a Bond Issue Key Calculations from a Bond Sale In this example, the debt service used to calculate the Arbitrage Yield, TIC and All-In TIC are the same. The difference between them is the 'target' value. Arbitrage Yield TIC All-In TIC Discount Rate* 3.98% 4.14% 4.34% 1/1/2008 -\$59,327,847 -\$58,939,872 -\$58,439,872 7/1/2008 1,281,856 1,281,856 1,281,856 1/1/2009 1,281,856 1,281,856 1,281,856 7/1/2009 1,281,856 1,281,856 1,281,856 1/1/2010 9,986,856 9,986,856 9,986,856 7/1/2010 1,129,519 1,129,519 1,129,519 1/1/ ,134,519 10,134,519 10,134,519 7/1/ , , ,931 1/1/ ,296,931 10,296,931 10,296,931 7/1/ , , ,094 1/1/ ,475,094 10,475,094 10,475,094 7/1/ , , ,969 1/1/ ,717,969 10,717,969 10,717,969 7/1/ , , ,006 1/1/ ,986,006 10,986,006 10,986,006 * Also known as the Internal Rate of Return, or IRR. 33

43 Questions and Answers Question and Answer Peter Taylor, Managing Director Matthew Koch, Vice President Barclays Capital Barclays Capital Constellation Boulevard, 25 th Floor 555 California Street, 41 st Floor Los Angeles, CA San Francisco, CA Phone: (310) Phone: (415) Fax: (212) Fax: (415)

### ANALYSIS OF FIXED INCOME SECURITIES

ANALYSIS OF FIXED INCOME SECURITIES Valuation of Fixed Income Securities Page 1 VALUATION Valuation is the process of determining the fair value of a financial asset. The fair value of an asset is its

### Chapter 9 Bonds and Their Valuation ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS

Chapter 9 Bonds and Their Valuation ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS 9-1 a. A bond is a promissory note issued by a business or a governmental unit. Treasury bonds, sometimes referred to as

### Virginia State University Policies Manual. Title: Debt Management Guidelines and Procedures Policy: 1500

Purpose a. To provide guidance to Virginia State University in undertaking long-term debt obligations benefiting the University. b. To provide a structured framework for the issuance of long-term debt

### MONEY MARKET FUND GLOSSARY

MONEY MARKET FUND GLOSSARY 1-day SEC yield: The calculation is similar to the 7-day Yield, only covering a one day time frame. To calculate the 1-day yield, take the net interest income earned by the fund

### City of Philadelphia Debt Management Policy December 2009

City of Philadelphia Debt Management Policy December 2009 I. INTRODUCTION While the issuance of debt is often an appropriate method of financing capital projects and major equipment acquisition, it needs

### Callable Bonds - Structure

1.1 Callable bonds A callable bond is a fixed rate bond where the issuer has the right but not the obligation to repay the face value of the security at a pre-agreed value prior to the final original maturity

### LOS 56.a: Explain steps in the bond valuation process.

The following is a review of the Analysis of Fixed Income Investments principles designed to address the learning outcome statements set forth by CFA Institute. This topic is also covered in: Introduction

### WEST BASIN MUNICIPAL WATER DISTRICT Debt Management Policy Administrative Code Exhibit G January 2015

1.0 Purpose The purpose of this Debt Management Policy ( Policy ) is to establish parameters and provide guidance as to the issuance, management, continuing evaluation of and reporting on all debt obligations.

### American Options and Callable Bonds

American Options and Callable Bonds American Options Valuing an American Call on a Coupon Bond Valuing a Callable Bond Concepts and Buzzwords Interest Rate Sensitivity of a Callable Bond exercise policy

### - Short term notes (bonds) Maturities of 1-4 years - Medium-term notes/bonds Maturities of 5-10 years - Long-term bonds Maturities of 10-30 years

Contents 1. What Is A Bond? 2. Who Issues Bonds? Government Bonds Corporate Bonds 3. Basic Terms of Bonds Maturity Types of Coupon (Fixed, Floating, Zero Coupon) Redemption Seniority Price Yield The Relation

### Section I. Introduction

Section I. Introduction Purpose and Overview In its publication entitled Best Practice Debt Management Policy, the Government Finance Officers Association (GFOA) states that Debt management policies are

### CDIAC provides information, education and technical assistance on public debt and investments to local public agencies and other public finance

CDIAC provides information, education and technical assistance on public debt and investments to local public agencies and other public finance professionals. 1 The California Debt and Investment Advisory

Chapter 6 Interest rates and Bond Valuation 2012 Pearson Prentice Hall. All rights reserved. 4-1 Interest Rates and Required Returns: Interest Rate Fundamentals The interest rate is usually applied to

### Maturity The date where the issuer must return the principal or the face value to the investor.

PRODUCT INFORMATION SHEET - BONDS 1. WHAT ARE BONDS? A bond is a debt instrument issued by a borrowing entity (issuer) to investors (lenders) in return for lending their money to the issuer. The issuer

### Understanding Fixed Income

Understanding Fixed Income 2014 AMP Capital Investors Limited ABN 59 001 777 591 AFSL 232497 Understanding Fixed Income About fixed income at AMP Capital Our global presence helps us deliver outstanding

### Debt Management Policies & Guidelines

Debt Management Policies & Guidelines January, 2004 PREPARED BY: ANDREW E. MEISNER, COUNTY TREASURER PATRICK M. DOHANY, COUNTY TREASURER I. COUNTY'S DEBT POLICY A. Purpose The County recognizes the foundation

### Debt Management Policy

Debt Management Policy Introduction One of the keys to sound financial management is the development of a debt policy. This need is recognized by bond rating agencies, and development of a debt policy

### Palm Beach County School District

Palm Beach County School District Synthetic Refunding Opportunities July 6, 2005 presented by Public Financial Management 300 South Orange Avenue Suite 1170 Orlando, FL 32801 407 648-2208 Table of Contents

### Chapter 6. Interest Rates And Bond Valuation. Learning Goals. Learning Goals (cont.)

Chapter 6 Interest Rates And Bond Valuation Learning Goals 1. Describe interest rate fundamentals, the term structure of interest rates, and risk premiums. 2. Review the legal aspects of bond financing

### Daily Income Fund Retail Class Shares ( Retail Shares )

Daily Income Fund Retail Class Shares ( Retail Shares ) Money Market Portfolio Ticker Symbol: DRTXX U.S. Treasury Portfolio No Ticker Symbol U.S. Government Portfolio Ticker Symbol: DREXX Municipal Portfolio

### Module A Advanced Bond Yield Computation Overview

Module A Advanced Bond Yield Computation Overview Introduction Computation of the correct bond yield is vital in determining compliance with yield restriction rules, arbitrage rebate rules and certain

### SECTION 7 DEBT MANAGEMENT POLICY LAS VEGAS VALLEY WATER DISTRICT FISCAL YEAR 2015-16 OPERATING AND CAPITAL BUDGET

SECTION 7 DEBT MANAGEMENT POLICY LAS VEGAS VALLEY WATER DISTRICT FISCAL YEAR 2015-16 OPERATING AND CAPITAL BUDGET In Accordance With NRS 350.013 June 30, 2015 7-1 Table of Contents Introduction... 7-3

### Floating-Rate Securities

Floating-Rate Securities A floating-rate security, or floater, is a debt security whose coupon rate is reset at designated dates and is based on the value of a designated reference rate. - Handbook of

FIN 534 Week 4 Quiz 3 (Str) Click Here to Buy the Tutorial http://www.tutorialoutlet.com/fin-534/fin-534-week-4-quiz-3- str/ For more course tutorials visit www.tutorialoutlet.com Which of the following

### CHAPTER 14: BOND PRICES AND YIELDS

CHAPTER 14: BOND PRICES AND YIELDS PROBLEM SETS 1. The bond callable at 105 should sell at a lower price because the call provision is more valuable to the firm. Therefore, its yield to maturity should

Answers to Review Questions 1. The real rate of interest is the rate that creates an equilibrium between the supply of savings and demand for investment funds. The nominal rate of interest is the actual

### Debt Policy Certification Program

Washington Municipal Treasurers Association Debt Policy Certification Program Sample Debt Policy [ISSUER NAME] [EMBLEM OF ISSUER] DEBT POLICY (SAMPLE) ADOPTED [DATE] (DRAFT 7/28/2003) TABLE OF CONTENTS

### A Guide to Investing in Floating-rate Securities

A Guide to Investing in Floating-rate Securities What to know before you buy Are floating rate bonds suitable for you? The features, risks and characteristics of floating rate bonds are different from

### Chapter 10. Fixed Income Markets. Fixed-Income Securities

Chapter 10 Fixed-Income Securities Bond: Tradable security that promises to make a pre-specified series of payments over time. Straight bond makes fixed coupon and principal payment. Bonds are traded mainly

### CHAPTER 9 DEBT SECURITIES. by Lee M. Dunham, PhD, CFA, and Vijay Singal, PhD, CFA

CHAPTER 9 DEBT SECURITIES by Lee M. Dunham, PhD, CFA, and Vijay Singal, PhD, CFA LEARNING OUTCOMES After completing this chapter, you should be able to do the following: a Identify issuers of debt securities;

### Bonds, in the most generic sense, are issued with three essential components.

Page 1 of 5 Bond Basics Often considered to be one of the most conservative of all investments, bonds actually provide benefits to both conservative and more aggressive investors alike. The variety of

### CHAPTER 8 INTEREST RATES AND BOND VALUATION

CHAPTER 8 INTEREST RATES AND BOND VALUATION Answers to Concept Questions 1. No. As interest rates fluctuate, the value of a Treasury security will fluctuate. Long-term Treasury securities have substantial

### Bonds and Yield to Maturity

Bonds and Yield to Maturity Bonds A bond is a debt instrument requiring the issuer to repay to the lender/investor the amount borrowed (par or face value) plus interest over a specified period of time.

### Daily Income Fund Retail Class Shares ( Retail Shares )

Daily Income Fund Retail Class Shares ( Retail Shares ) Money Market Portfolio Ticker Symbol: DRTXX U.S. Treasury Portfolio No Ticker Symbol U.S. Government Portfolio Ticker Symbol: DREXX Municipal Portfolio

### DEBT MANAGEMENT POLICY

Page 1 of 5 DEBT LIMITS Credit Ratings The school district seeks to maintain the highest possible credit ratings for all categories of short- and long-term debt that can be achieved without compromising

### Arkansas Development Finance Authority, a Component Unit of the State of Arkansas

Arkansas Development Finance Authority, a Component Unit of the State of Arkansas Combined Financial Statements and Additional Information for the Year Ended June 30, 2000, and Independent Auditors Report

### Module A Introduction to Tax-Exempt Bonds Overview

Module A Introduction to Tax-Exempt Bonds Overview Introduction This module provides an introduction to the municipal (tax-exempt) bond market. It is divided into five sections. Fundamentals The basic

### Tax rules for bond investors

Tax rules for bond investors Understand the treatment of different bonds Paying taxes is an inevitable part of investing for most bondholders, and understanding the tax rules, and procedures can be difficult

### STATE BOARD OF REGENTS OF THE STATE OF UTAH STUDENT LOAN PURCHASE PROGRAM An Enterprise Fund of the State of Utah

An Enterprise Fund of the State of Utah Financial Statements AN ENTERPRISE FUND OF THE STATE OF UTAH FOR THE NINE MONTHS ENDED MARCH 31, 2011 TABLE OF CONTENTS Page MANAGEMENT S REPORT 1 FINANCIAL STATEMENTS:

### INDIANA BOND BANK. (A Component Unit of the State of Indiana)

Financial Statements with Supplementary Information (A COMPONENT UNIT OF THE STATE OF INDIANA) Table of Contents Independent Auditors Report 1 Page(s) Management s Discussion and Analysis 2 7 Financial

Review for Exam 1 Instructions: Please read carefully The exam will have 21 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation

### CHAPTER 14: BOND PRICES AND YIELDS

CHAPTER 14: BOND PRICES AND YIELDS 1. a. Effective annual rate on 3-month T-bill: ( 100,000 97,645 )4 1 = 1.02412 4 1 =.10 or 10% b. Effective annual interest rate on coupon bond paying 5% semiannually:

### Bond Basics. Presented by: Special Products Team Asset Management Department Multifamily Division, Freddie Mac. July 2009. 1 Bond Training Part 1

Bond Basics Presented by: Special Products Team Asset Management Department Multifamily Division, Freddie Mac July 2009 1 Bond Training Part 1 What is a Bond? Debt Security purchased by investors known

### Exit Strategies for Fixed Rate Financing. Comparing Yield Maintenance and Defeasance Alternatives. by Regan Campbell and Jehane Walsh

Defeasance Vs. Yield Maintenance Exit Strategies for Fixed Rate Financing Comparing Yield Maintenance and Defeasance Alternatives by Regan Campbell and Jehane Walsh When looking to refinance or sell a

### US TREASURY SECURITIES - Issued by the U.S. Treasury Department and guaranteed by the full faith and credit of the United States Government.

Member NASD/SIPC Bond Basics TYPES OF ISSUERS There are essentially five entities that issue bonds: US TREASURY SECURITIES - Issued by the U.S. Treasury Department and guaranteed by the full faith and

### Municipal Securities: An Investor s Guide

Municipal Securities: An Investor s Guide INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE Introduction The purpose of this guide is to provide investors with an overview of the benefits

### Topics in Chapter. Key features of bonds Bond valuation Measuring yield Assessing risk

Bond Valuation 1 Topics in Chapter Key features of bonds Bond valuation Measuring yield Assessing risk 2 Determinants of Intrinsic Value: The Cost of Debt Net operating profit after taxes Free cash flow

### Process of Municipal Bond Debt Issuance

Process of Municipal Bond Debt Issuance Public Financial Management, Inc. Asset Management LLC Advisors Public Financial Management, Inc. 221 W. 6 th St., Suite 1900 Austin, TX 78701 512.614.5325 5325

### Important Information about Investing in Bonds

Robert W. Baird & Co. Incorporated Important Information about Investing in Bonds Baird has prepared this document to help you understand the characteristics and risks associated with bonds and other fixed

### In-Depth Look at Debt Structuring

FINANCE 301: In-Depth Look at Debt Structuring 2012 CPIM Academy Josh Mandel, State Treasurer of Ohio FINANCE 301 In-Depth Look at Debt Structuring 2012 CPIM Academy Review of Bonds & Bond Terms Bonds

### Introduction to Fixed Income (IFI) Course Syllabus

Introduction to Fixed Income (IFI) Course Syllabus 1. Fixed income markets 1.1 Understand the function of fixed income markets 1.2 Know the main fixed income market products: Loans Bonds Money market instruments

### Bond Valuation. FINANCE 350 Global Financial Management. Professor Alon Brav Fuqua School of Business Duke University. Bond Valuation: An Overview

Bond Valuation FINANCE 350 Global Financial Management Professor Alon Brav Fuqua School of Business Duke University 1 Bond Valuation: An Overview Bond Markets What are they? How big? How important? Valuation

### Investors Chronicle Roadshow 2011. Trading Bonds on the London Stock Exchange

Investors Chronicle Roadshow 2011 Trading Bonds on the London Stock Exchange Agenda How do bonds work? Risks associated with bonds Order book for Retail Bonds London Stock Exchange Website Tools 2 How

### State of Maryland Debt Management and Interest Rate Exchange Agreement Policies

State of Maryland Debt Management and Interest Rate Exchange Agreement Policies 1.0 Objective This Debt Management and Interest Rate Exchange Agreement Policy (Policy), prepared by the Maryland State Treasurer

### STATE OF FLORIDA FLORIDA BOARD OF GOVERNORS DEBT MANAGEMENT GUIDELINES

STATE OF FLORIDA FLORIDA BOARD OF GOVERNORS DEBT MANAGEMENT GUIDELINES WITH VARIABLE RATE DEBT GUIDELINES AND INTEREST RATE SWAP GUIDELINES AS APPROVED BY THE FLORIDA ATLANTIC UNIVERSITY BOARD OF TRUSTEES

### STATE BOARD OF REGENTS OF THE STATE OF UTAH STUDENT LOAN PURCHASE PROGRAM An Enterprise Fund of the State of Utah

An Enterprise Fund of the State of Utah Financial Statements AN ENTERPRISE FUND OF THE STATE OF UTAH FOR THE SIX MONTHS ENDED DECEMBER 31, 2011 TABLE OF CONTENTS Page MANAGEMENT S REPORT 1 FINANCIAL STATEMENTS:

### Bond Market Overview and Bond Pricing

Bond Market Overview and Bond Pricing. Overview of Bond Market 2. Basics of Bond Pricing 3. Complications 4. Pricing Floater and Inverse Floater 5. Pricing Quotes and Accrued Interest What is A Bond? Bond:

### DEBT MANAGEMENT POLICY CITY OF WINTER PARK, FLORIDA

DEBT MANAGEMENT POLICY CITY OF WINTER PARK, FLORIDA 1. Administration of debt policy: The Finance Director of the City of Winter Park, Florida (the City ) is charged with overseeing and implementing the

### Bond Valuation. Capital Budgeting and Corporate Objectives

Bond Valuation Capital Budgeting and Corporate Objectives Professor Ron Kaniel Simon School of Business University of Rochester 1 Bond Valuation An Overview Introduction to bonds and bond markets» What

### Purdue University on Behalf of Ross-Ade Foundation Direct Bank Purchase Request For Proposal(s) January 8, 2014

Purdue University on Behalf of Ross-Ade Foundation Direct Bank Purchase Request For Proposal(s) January 8, 2014 Objective Purdue University, West Lafayette IN ( Purdue, the University, the Corporation

### Exam 1 Morning Session

91. A high yield bond fund states that through active management, the fund s return has outperformed an index of Treasury securities by 4% on average over the past five years. As a performance benchmark

### Tennessee Housing Development Agency Debt Management Policy Approved November 29, 2011, amended July 29, 2014

Tennessee Housing Development Agency Debt Management Policy Approved November 29, 2011, amended July 29, 2014 I. Background The Tennessee Housing Development Agency ( THDA ) is a body, politic and corporate,

### Debt Policy. Summary of Policy. Historical Perspective

Debt Policy Summary of Policy The Debt Policy governs the issuance and management of all debt, including the investment of bond and lease proceeds not otherwise covered by the Investment Policy. The process

### City of Philadelphia Debt Management Policy August 2015

City of Philadelphia Debt Management Policy August 2015 I. INTRODUCTION While the issuance of debt is often an appropriate method of financing capital projects and major equipment acquisition, it needs

### Chapter 4 Bonds and Their Valuation ANSWERS TO END-OF-CHAPTER QUESTIONS

Chapter 4 Bonds and Their Valuation ANSWERS TO END-OF-CHAPTER QUESTIONS 4-1 a. A bond is a promissory note issued by a business or a governmental unit. Treasury bonds, sometimes referred to as government

### Summary of Federal Arbitrage Law 1. March 1, 2012

Summary of Federal Arbitrage Law 1 March 1, 2012 Table of Contents 1 INTRODUCTION AND SCOPE... 1 Page 1.1 Source of Tax Exemption... 1 1.2 Nature of Obligation... 1 1.3 Scope of this Memo; Disclaimer...

### INTERACTIVE BROKERS DISCLOSURE STATEMENT FOR BOND TRADING

INTERACTIVE BROKERS DISCLOSURE STATEMENT FOR BOND TRADING THIS DISCLOSURE STATEMENT DISCUSSES THE CHARACTERISTICS AND RISKS OF TRADING BONDS THROUGH INTERACTIVE BROKERS (IB). BEFORE TRADING BONDS YOU SHOULD

### City National Rochdale Municipal High Income Fund a series of City National Rochdale Funds

City National Rochdale Municipal High Income Fund a series of City National Rochdale Funds SUMMARY PROSPECTUS DATED JANUARY 31, 2016 Class: Servicing Class Class N Ticker: (CNRMX) (CNRNX) Before you invest,

### General. Scope. Objectives. The objective of the Policy is to ensure prudent debt management practices that include:

General This Policy (the Policy ) establishes conditions for the use of debt and creates procedures and policies designed to manage the Alamo Community College District s (the College District ) obligations

### Bond Mutual Funds. a guide to. A bond mutual fund is an investment company. that pools money from shareholders and invests

a guide to Bond Mutual Funds A bond mutual fund is an investment company that pools money from shareholders and invests primarily in a diversified portfolio of bonds. Table of Contents What Is a Bond?...

### Interest Rates and Bond Valuation

Interest Rates and Bond Valuation Chapter 6 Key Concepts and Skills Know the important bond features and bond types Understand bond values and why they fluctuate Understand bond ratings and what they mean

### LONG ISLAND POWER AUTHORITY UTILITY DEBT SECURITIZATION AUTHORITY Debt Management Policy (as amended on March 26, 2015)

LONG ISLAND POWER AUTHORITY UTILITY DEBT SECURITIZATION AUTHORITY Debt Management Policy (as amended on March 26, 2015) I. Purpose of Debt Management Policy The debt management policy sets forth the parameters

### Table of Comparative Provisions of Tax Credit Bonds Provisions Under American Recovery and Reinvestment Act Build America Bonds (Direct Payment)

Table of Comparative Provisions of Tax Credit Bonds Provisions Under American Recovery and Reinvestment Act Type of subsidy Tax credit to bondholder Subsidy payment to issuer; can be made directly to paying

### Financial-Institutions Management. Solutions 6

Solutions 6 Chapter 25: Loan Sales 2. A bank has made a three-year \$10 million loan that pays annual interest of 8 percent. The principal is due at the end of the third year. a. The bank is willing to

### Current liabilities - Obligations that are due within one year. Obligations due beyond that period of time are classified as long-term liabilities.

Accounting Fundamentals Lesson 8 8.0 Liabilities Current liabilities - Obligations that are due within one year. Obligations due beyond that period of time are classified as long-term liabilities. Current

Graduate School of Colorado SBA lending Presentation SBA lending course summary The course will provide an overview and comparison of SBA 7a, SBA 504 and USDA Business & Industry (B&I) loan programs. SBA

### Understanding duration and convexity of fixed income securities. Vinod Kothari

Understanding duration and convexity of fixed income securities Vinod Kothari Notation y : yield p: price of the bond T: total maturity of the bond t: any given time during T C t : D m : Cashflow from

The consequence of failing to adjust the discount rate for the risk implicit in projects is that the firm will accept high-risk projects, which usually have higher IRR due to their high-risk nature, and

### Chapter. Investing in Bonds. 13.1 Evaluating Bonds 13.2 Buying and Selling Bonds. 2010 South-Western, Cengage Learning

Chapter 13 Investing in Bonds 13.1 Evaluating Bonds 13.2 Buying and Selling Bonds 2010 South-Western, Cengage Learning Standards Standard 4.0 Investigate opportunities available for saving and investing.

### ALPINE HIGH YIELD MANAGED DURATION MUNICIPAL FUND, A SERIES OF ALPINE INCOME TRUST

ALPINE HIGH YIELD MANAGED DURATION MUNICIPAL FUND, A SERIES OF ALPINE INCOME TRUST SUPPLEMENT DATED APRIL 4, 2016 TO THE SUMMARY PROSPECTUS DATED FEBRUARY 29, 2016 The following replaces the fee table

### CERTIFICATE OF DEPOSIT DISCLOSURE STATEMENT April 2014

The information contained in this Disclosure Statement may not be modified by any oral representation made prior or subsequent to the purchase of your Certificate of Deposit. CERTIFICATE OF DEPOSIT DISCLOSURE

### Chapter 5: Valuing Bonds

FIN 302 Class Notes Chapter 5: Valuing Bonds What is a bond? A long-term debt instrument A contract where a borrower agrees to make interest and principal payments on specific dates Corporate Bond Quotations

### Cambrian School District

Disclaimer: Provided for distribution in advance of the meeting. Please see Board minutes for Q&A and verbal commentary. Cambrian School District Report on Taxpayer Savings from Measure G Bond Refinancing

### Legislative findings and declaration of purpose. Pennsylvania Economic Revitalization Fund.

PENNSYLVANIA ECONOMIC REVITALIZATION ACT Act of Jul. 2, 1984, P.L. 512, No. 104 AN ACT Cl. 12 Implementing the provisions of the referendum, approved by the electors, for the incurrence of indebtedness

### FIXED-INCOME SECURITIES. Chapter 10. Swaps

FIXED-INCOME SECURITIES Chapter 10 Swaps Outline Terminology Convention Quotation Uses of Swaps Pricing of Swaps Non Plain Vanilla Swaps Terminology Definition Agreement between two parties They exchange

### FINANCE AND AUDIT COMMITTEE OF THE UTILITY DEBT SECURITIZATION AUTHORITY MINUTES OF THE 5 TH MEETING HELD ON JULY 28, 2015 IN UNIONDALE, NY

FINANCE AND AUDIT COMMITTEE OF THE UTILITY DEBT SECURITIZATION AUTHORITY MINUTES OF THE 5 TH MEETING HELD ON JULY 28, 2015 IN UNIONDALE, NY The Finance and Audit Committee (the Committee ) of the Utility

Leader Short-Term Bond Fund Institutional Shares: Investor Shares: Class A Shares: Class C Shares: LCCIX LCCMX LCAMX LCMCX Leader Total Return Fund Institutional Shares: Investor Shares: Class A Shares:

### Foreword. First some very basic questions and answers which are fundamental to the process:

Foreword Municipal Bonds 101 was written by the Treasurer s Office to demystify the bond sale process for interested observers. The format is an outline representing the major activities and elements associated

### 20. Investments 4: Bond Basics

20. Investments 4: Bond Basics Introduction The purpose of an investment portfolio is to help individuals and families meet their financial goals. These goals differ from person to person and change over

### Presented by Erin Gore Executive VP, Wells Fargo Bank, N.A. Doug Brown Director, Wells Fargo Securities

Primer on Debt Financing and Treasury Management Presented by Erin Gore Executive VP, Wells Fargo Bank, N.A. Doug Brown Director, Wells Fargo Securities Disclosure This communication is for informational

### Contra Costa County, California Debt Management Policy

Contra Costa County, California Debt Management Policy County Administration 651 Pine Street, 10 th Floor Martinez, California 94553 925-335-1023 lisa.driscoll@cao.cccounty.us Resolution No. 2015/245 Resolution

### Open Joint Stock Company Gazprom

EXECUTION COPY FINAL TERMS DATED 9 APRIL 2008 Open Joint Stock Company Gazprom Series 17 U.S.\$1,100,000,000 8.146 per cent. Loan Participation Notes due 11 April 2018 issued by, but with limited recourse

### High-yield bonds. Bonds that potentially reward investors for taking additional risk. High-yield bond basics

High-yield bonds Bonds that potentially reward investors for taking additional risk Types of high-yield bonds Types of high-yield bonds include: Cash-pay bonds. Known as plain vanilla bonds, these bonds

### Brokered certificates of deposits

Brokered certificates of deposits A guide to what you should know before you buy Are brokered CDs right for you? Brokered CDs are designed for investors who: Want access to a wide selection of issuers

### State of Arkansas Construction Assistance Revolving Loan Fund Program

Auditor s Report and Financial Statements Contents Independent Auditor s Report... 1 Management s Discussion and Analysis... 4 Financial Statements Statements of Net Position... 9 Statements of Revenues,

### Calling the Calls on Municipal Bonds And How To Use Calls To Seek Higher Yields

Calling the Calls on Municipal Bonds And How To Use Calls To Seek Higher Yields Investors can get hurt by bond calls, particularly when they buy premium bonds without knowing all the calls in advance.