For the purpose of this chapter, the following definitions shall apply unless the context clearly indicates or requires a different meaning.
ADVANCE REFUNDING. A refinancing transaction in which new (refunding) bonds are issued to repay (refund) outstanding bonds prior to the first call date. The proceeds of the refunding bonds are deposited in an escrow account, invested in government securities and used to pay debt service (interest, principal and premium, if any) on the refunded bonds through the applicable call date.
ARBITRAGE. The difference between the interest paid on the tax-exempt securities and the interest earned by investing the proceeds in higher-yielding taxable securities. IRS regulations govern arbitrage on the proceeds from issuance of municipal securities.
BOND ANTICIPATION NOTES (BANs). Notes which are paid from the proceeds of the issuance of long-term bonds. Typically issued for capital projects.
CALL PROVISIONS. The terms of the bond giving the issuer the right to redeem all or a portion of a bond prior to its stated date of maturity at a specific price, usually at or above par.
CAPITALIZED INTEREST. A portion of the proceeds of a bond issue which is set aside to pay interest on the same bond issue for a specific period of time. Interest is commonly capitalized for the construction period of the project.
CAPITAL LEASE. A lease obligation that has met the criteria to be categorized as a capital lease as opposed to an operating lease under generally accepted accounting principles.
COMPETITIVE SALE. A sale/auction of securities by an issuer in which underwriters or syndicate of underwriters submit sealed bids to purchase the securities.
CONTINUING DISCLOSURE. The principle that accurate and complete information material to the transaction which potential investors would be likely to consider material in making investment decisions with respect to the securities, be made available on an ongoing basis.
DEBT. An amount of money borrowed by one party, the borrower or debtor, to a second party, the lender or creditor.
DEBT SERVICE RESERVE FUND. The fund in which moneys are placed which may be used to pay debt service if pledged revenues are insufficient to satisfy the debt service requirements.
DESIGNATION POLICIES. A policy or policies that outline how an investor’s order is filled when a maturity is oversubscribed when there is an underwriting syndicate. The senior managing underwriter and issuer decide how the bonds will be allocated among the syndicate. There are three primary classifications of orders which form the designation policy: group net orders; net designated orders and member orders.
ESCROW. A fund established to hold moneys pledged and to be used to pay debt service on an outstanding issue.
EXPENSES. Compensates senior managers for out-of-pocket expenses including underwriter’s counsel, PTC charges, travel, syndicate expenses, dealer fees, overtime expenses, communication expenses, computer time and postage.
GENERAL OBLIGATION (GO) BONDS. Bonds issued and secured by the city’s pledge of its full faith and credit and unlimited taxing power.
INTERGENERATIONAL EQUITY. Equity or fairness principle that those that benefit from a capital improvement should pay for it.
LEGAL DEBT MARGIN. The amount of GO bonds and certain other interest-bearing obligations (other than revenue bonds) that the city may have outstanding expressed as a percentage of the assessed value of real property in the city as shown on the last preceding assessment for taxes.
NEGOTIATED SALE. A method of sale in which the issuer chooses one underwriter to negotiate terms pursuant to which such underwriter will purchase and market the bonds.
OPTION VALUE. Option valuation is a methodology for evaluating the efficiency of a refunding. Option valuation calculates the maximum theoretical value of refunding a bond, then expresses the current refunding savings as a percentage of the maximum theoretical savings.
PAY-AS-YOU-GO. An issuer elects to finance a project with existing cash flow as opposed to issuing debt obligations.
PRESENT VALUE. The current value of a future cash flow.
PRIVATE PLACEMENT. The original placement of an issue with one or more investors as opposed to being publicly offered or sold.
REBATE. A requirement imposed by the Tax Reform Act of 1986 whereby the issuer of tax-exempt bonds must pay the IRS an amount equal to its profit earned from investment of tax-exempt bond proceeds at rates exceeding the tax-exempt borrowing rate. The tax-exempt borrowing rate (or “bond yield”) is calculated pursuant to the IRS code together with all income earned on the accumulated profit pending payment.
REFUNDING. A transaction in which the city refinances an outstanding issue by issuing new (refunding) bonds and using the proceeds to immediately retire the old (refunded) bonds.
REVENUE BONDS. Bonds issued by the city secured by a specific revenue pledge of rates, rents or fees.
TAX-SUPPORTED DEBT. Debt that is expected to be repaid from the general fund tax revenues of the city. This includes GO bonds, appropriation-supported bonds, capital leases and in certain circumstances moral obligation bonds. For the purpose of this debt policy, net tax-supported debt includes GO debt for the city, certain bonded capital leases, and any moral obligation bonds for which the city has deposited funds to a debt service reserve fund as requested to replenish such reserve fund.
UNDERWRITER. A dealer that purchases new issues of municipal securities from the issuer and resells them to investors.
UNDERWRITER’S DISCOUNT. The difference between the price at which bonds are bought by the underwriter from the issuer and the price at which they are reoffered to investors.
(1984 Code, § 40.02) (Ord. O-07-19, passed 3-26-2019)