Chapter 16 – Municipal Bond Markets

1. Chapter 16 – Municipal Bond Markets BA 543 Financial Markets and Institutions

2. Chapter 16 – Municipal Markets • State, County, and Local Agencies that Issue Debt • State, County and City Governments • Agencies • School Districts • Fire Districts • Sewer Districts • Airports, Port Authorities, etc. • Taxed Advantaged (Interest not Capital Gain) • Purpose – Short Term, Long-Term or Specific Project

3. Chapter 16 – Municipal Markets • Tax Backed Debt • Issuer has general or specific taxing abilities and pledge the “revenue” from their taxing authority to pay off debt • General Obligation – Unlimited and Limited • Special fees or special charges • If both used – double barrel • Potential Support • Moral Obligation Bonds • Appropriation Backed Bonds

4. Chapter 16 – Municipal Markets • Revenue Bonds • Specific Revenue from “project” is obligated to pay off debt • School Bond Issue – OSU Dormitory Bond • Revenue from Room and Board Fees paid by students dedicated to paying off bond • Short-fall on fees • Hybrids • Insured Bond – Commercial Insurance • Prerefunded Bonds (Trust Portfolio) • Asset-backed (matched to sales tax, etc.)

5. Chapter 16 – Municipal Markets • Municipal Notes (Up to 3 years) • Short Term borrowing – Bridge Financing • TANS (Tax) • RANS (Revenue) • GANS (Grant) • BANS (Bond) • Redemption Features • Serial • Call • Prepayment Options

6. Chapter 16 – Municipal Markets • Other Features • Bond Ratings • Tax Risk • Changing Tax Rates • Loss of Tax Status • Default Problems • New York City • WPPSS (Washington Public Power Supply System) • Orange County California

7. Chapter 16 – Municipal Markets • Primary Market • Generally Bid Process with Underwriter • Secondary Market • Dealer Market • 2000 – Start of Internet Auctions and Sales • Regulation of Municipal Markets • Exempt from 1933 and 1934 Security Acts • Brought Back “under” SEC in 1975 Security Amendment Act • SEC Bond Disclosure Rule 1989