Series 7: Municipal Bonds
Balloon Maturity
-Quoted Yield to Maturity like Serial
Muni Bond Insurance
NPFGC FGIC AGC AMBAC Added Safety means Lowest Interest Rate
Round Lot
$100,000 Face amount
Other MSRB Rules
-Accnt Sharing between reps & Customers w written permission, OK. Profits & Losses must be proportionate -Control Relationships when R/R, Muni & B/D must be disclosed in writing at or before completion of transaction
Firm Underwriting Commitment
-Competitive Bid submitted at -Syndicate buys bonds from issuer -Difference in price bonds delivered & re-offered to public is U/W Spread(compensation to Underwriters/Mark Up)
Yield Disclosure
-Discount Bond = YTM -Premium Bond = YTC -Variable = Not able -Default Bonds = Not able -Par Bonds = Coupon Rate (Lowest Yield)
Syndicate Agreement/Letter/Contract/Agreement Among UW
-Firms level of commitment -Priority of Allocation -Duration of Syndicate -Managers as agents -Fee/Breakdown of Spread (NOT signed by Issuer, Counsel or Trustee only Syndicate) -Not Legally binding until submission of bid
Competitive Bid Underwriting
-Invitation to bid -Official notice of sale published in Bond Buyer -All material facts about issuer include EXCEPT Bond Rating & U/W Name -Issuer chooses bid (Lowest Rate / Highest Price per bond) -Writing the scale -Bids submitted by underwriters on OFFICIAL BID FORM -Establish re-offering yield -Issuer compares bids using NIC (Net Interest Cost) TIC (True Interest Cost) TIC = includes Time value of Money in calculation NIC= does NOT include Time Value of Money LOWEST NIC WINS
Double Barrel Bond (GO)
-Issued as GO -But more like a Rev -Income by facility earnings -Backed by the taxing power of the state/Municipality
Muni Key Elements
-Issued by State and Local Govt or Territories -FED TEX Exempt (Interest Payments) -State & Local exempt is issuer/resident in same state -Capital gains taxed as ordinary income Territories 3 Tax exempt (PR, Guam)
New Issue Muni
-Notice in Bond Buyer/Published Daily -30 day visible supply -provides total $ volume of all muni offerings scheduled to be offered in coming month -Placement/Acceptance Ratio - previous weeks new issues from underwriters -Muni Facts- Wire service / 2nd market & New Issue info
Official Notice of Sale
-Published in Bond Buyer -Requests bid for New Issues -All Material info except Bond Rating & U/w Name Investment bankers use this along with New Issue Supply & Demand & Market Conditions to Prepare Bid
Serial Maturity
-Quoted by Yield basis to Maturity -Par = Price & Yield the same
Term Maturity
-Quotes by PRICE/DOLLAR (Similar to Corp Bonds) -All Principal Matures @ Single Date
Best Efforts Commitment
-Syndicate acts as Agent and sales on behalf of issuer
GO (General Obligation)
-Taxes, License Fees, Property Taxes, Fines -Schools, Roads, Park -Statutory Debt Limits -Voter Approval -Mills= $1 for every $1000 of assets prop value -AKA Full Faith and Credit issues -Coterminous debt = Property tax (not state) -Serial Maturities Quoted yield to Maturity
Trust indenture / Bond Resolution (REVENUE)
-Trustee & Issuer for the benefit of Bondholder -Protective covenants Rates Maintenance Insurance Sinking Fund Catastrophe clause flow of funds call features Books/Records require outside audit Full Indenture avail to investor upon request
REVENUE
-Utilities, houses, transportation (Airport/Tolls), education (college dorms, Student loans), Health (hospitals), Industrial, Sports. -Additional bonds test (NOT Voter approval) -Feasibility Study -AKA Self Supporting -Debt Service coverage ratio
Qualitative Analysis (GO) Subjective Info
ATTITUDE towards debt/tax Population TRENDS Property value TRENDS Plans/Projects
Nominal/Subject
Approximate/Estimate For Information ONLY
Political Contribution
BD can not transact biz with issuer for 2 years if contributed more then $250 Politically
Workable Indication
Bid Price Dealer will pruchase from other dealers
"When Issued Confirmation"
Most NEW Munis sold this way WONT INCLUDE SAT -Settlement Date -Accrued Interest -Total amount
Agent
Commission
Financial Adviser Relationship Disclosure
Competitive Bids -Fin Adviser CAN have relationship with Issuers as long as disclosed Negotiated Bids -Fin Adviser MUST disclose AT or BEFORE Termination/Compensation
THOMSON Muni Market
Formerly Muni Facts Current info on Secondary Market
Reciprical Dealings (Anti Reciprical Rule)
Dealer cannot solicit trades in Munis from investment Co in return for sales by the dealer of shares/units in the investment Co
Gross Rev Pledge
Debt Service Paid 1st
MSRB
Does NOT Enforce Rules just makes them Rules enforces by FINRA, SEC, Office of Compliance
Mark Up Mark Down Commissions
Fair and reasonable NOT 5% rule
Syndicate
Formed by Investment Banks -Assist/Share risk of underwriting new issues -Syndicate manager collect signatures of participating firms of syndicate letter --Firms Participation Amount --Specific info related to issue
Official Statement
Future Needs Debt Statement (Total Debt = All Debt - Self Supporting) (Net Debt = ^ -Sinking Fun + Overlapping)
Types of Revenue Bonds
IDR Lease Rental Cert of Participation (CoP) Special Tax (Sin/Business License Rev) Special assessment (streets, sidewalks,sewers) New Houseing Authorities (NHA PHA) - Backed by GOVT but not Double Barrel -ONLY MUNI backed by Govt Moral Obligation
Negotiated Bid Underwriting
Investment Banker appointed by Municipality U/W works w Issuer to establish % & re-offering price Public or Private Syndicate signs Syndicate CONTRACT/Agreement Among U/W
Preliminary Official Statement
MOST Material Facts EXCEPT- Interest Rate & Offering Price -U/w use to determine indication of interest in sale/issue
Upon Receipt of Complaint
MSRB Investor Brochure delivered to client Complain on File for 6 years
Underwriting Spread
Managers Fee - Smallest, received for EVERY bond sold Total Take-down -Additional Take-Down + -Concession (if selling group sales to public @ reoffering price they recv concession & Syndicate keeps rest) Spread quoted in BOND POINTS -1 point = $10 1/4 point = $2.50 1/2 point = $5.00 3/4 point = $7.50
Principal Sale
Mark Up / Mark Down
Bona Fide
Means FIRM -Reflects dealers best judgement -Reasonable relationship to the fair market vale -May reflect dealer inventory & expectation of market
Legal Opinion
Not mandatory Independent Bond Counsel -Munis authority to issue bonds -Legality of bonds -tax status of bonds Ex Legal means no Legal Opinion Unqualified is GOOD Qualified means there are limitations
EMMA
Online Site to locate key info about muni securities
Net Rav Pledge
Operation cost Paid 1st
Holding a Quote
Out Firm w recall Good for 1 hour
Quantitative Analysis (GO) Objective Info
Population Property Value Per capita income
Advertising
Principal MUST approve Kept on File for 3 years -Abstracts/Summaries of Official Statement -Offering Circular -Reports -Market Letters -Form Letters (Prelim & Final Official Statement NOT Ads)
Analyst of GO
Property Value Retail Sales per Capita Local bank deposits/Bank clearings Diversity of industry in tax base Population growth or decline
Bond Buyer
Published Daily Primary Market Munis Friday addition shows next 30 day supply expected to hit market Placement / acceptance ratio (Sold/offered prior week) 40 Bond Index 20 Bond Index 11 Bond Index - higher rated than 20 Revdex 25 - Yield on Revdex higher than Go 20 Bond (higher risk)
Brokers Broker
Sales on behalf of Broker/Dealer
Confirmations
Sent ON or BEFORE Settlement to Investors includes Purchase Price & Settlement Date Investors begin to recv % on Settlement Date Dated Date is when % begins to Accrue -Up to but not included Settlement -Descriptions of security -Trade & settlement dates -Total amount due @ settlement -CUSIP -Time of Execution -Accrued % -Agent or Principal If Principal - Mark up/down not req on confirm unless requested If Agent- Commission included on confirm -Firm info -Bonds Price/Lowest Yield
Muni Notes
Short Term financing(3 months-3 years) TAN RAN TRAN BAN Tax exempt Commercial Paper CLN (Construction Loan Note) Variable Rate Demand Note -Issued w PUT option (Aka Reset bond) Price remains nears Par @ all times GAN ARS (Auction Rate Securities) Long term tied to short term interest rates MIG ratings on all Muni notes
Syndicate Letter
Signed to formalize COMPETITIVE bids Contains priority for order allocation Set by MSRB -Presale -Group Net -Designated -Member Order
SLGS
State and Local Govt securities Prerefunding $ in escrow account invested in Govt securities for prerefunding
Violations of MSRB Rules
Subject to Expulsion, Suspension, Censor
Real Time Transaction Reporting System
Upto the Minute Pricing With In 15 minutes of Trade
Western vs Eastern
Western= DIVIDED What doesn't sale - must keep in inventory Eastern= UNDIVIDED What doesn't sale gets divided up based on orig % commitment
