Refunding Methods
Chapters in this video
- 0:00 The 90-day bright line for current versus advance
- 1:00 Direct exchange versus sale of new issue
- 2:02 Current refunding inside the 90-day window
- 3:03 Advance refund and the AAA escrow vault
- 4:43 Tax law change: taxable bond requirement
- 5:02 Escrowed to maturity and defeasance
- 6:03 Crossover refunding: new bonds paid first
- 7:07 Rapid-fire exam recap
What this video covers
- The 90-day bright line that separates current refunding from advance refunding, and why the exam tests this threshold repeatedly
- Current refunding mechanics: no escrow needed when old bonds are called or mature within 90 days
- Advance refunding mechanics: escrow funded with United States government securities, and why pre-refunded bonds earn an AAA rating from the escrowed Treasuries rather than issuer credit
- The Tax Cuts and Jobs Act of 2017 elimination of tax-exempt advance refunding, and why issuers now use taxable bonds for this structure
- Escrowed to maturity (ETM): how it differs from standard advance refunding by paying old bonds to final maturity instead of call date, and why ETM bonds rank among the safest municipals
- Crossover refunding: how the escrow initially pays the new bonds (not the old bonds), and the mechanics of the crossover date pivot
- Defeasance: what it means for debt to be economically removed from the issuer's balance sheet once escrow is established
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