Series 52 key terms

A municipal bond backed by the issuer's full faith, credit, and taxing power, including its ability to levy taxes. General obligation bonds often require voter approval and are not secured by a specific project revenue stream.

A municipal bond payable only from the revenues of a specific project or enterprise, such as a water system, toll road, or airport. The issuer's general taxing power does not stand behind the debt.

A municipal bond repaid from assessments levied on properties that benefit from an improvement, such as a sewer, sidewalk, or streetlight project. If assessments fall short, the issuer's general credit is usually not obligated.

A municipal bond whose proceeds mainly benefit a private party, such as a manufacturing plant or airport terminal. These bonds are subject to volume caps and often pay interest that is taxable or subject to the alternative minimum tax.

A municipal issue with stated maturities falling in installments over successive years rather than all at once. Each serial maturity carries its own coupon and price, and principal is retired gradually.

A municipal issue in which a substantial portion of principal matures on a single final date. Term bonds are typically retired before maturity through scheduled sinking fund payments or mandatory redemption provisions.

Money set aside periodically by the issuer, usually held by a trustee, to retire term bonds before or at maturity. Sinking fund installments reduce outstanding principal according to a set schedule.

A municipal bond that pays no periodic interest. It is sold at a deep discount and grows in value until maturity, when the investor receives the compounded accreted amount.

A municipal bond whose interest rate resets periodically, often daily or weekly, and that gives the holder the right to put the bond back to a liquidity provider. These features keep the price close to par.

A short-term municipal note issued in anticipation of future long-term bond proceeds. It finances a project during construction and is repaid from the proceeds of the permanent financing.

A bond refinanced before maturity, with proceeds of a new issue placed in escrow in government securities to pay the old bond's principal and interest. The escrowed bond is effectively backed by the escrow rather than the issuer.

Net revenues available for debt service divided by total annual debt service. Analysts and investors use it to measure how much cushion a revenue project has before it cannot cover bond payments.

A promise in a revenue bond indenture that the issuer will set rates and charges at levels sufficient to cover operating costs and debt service, often at a specified minimum coverage ratio.

A municipal bond issued by a small issuer, generally no more than $10 million of tax-exempt bonds in a calendar year, meeting conditions that let banks deduct interest expense on carrying the bonds. This can widen demand and lower yield.

The compounded annual rate that equates a bond's future coupon and principal payments to its current price. It assumes all payments are reinvested at that same rate until maturity.

The lowest yield an investor would receive across all redemption scenarios, including maturity, each call date, or a mandatory sinking fund date, assuming redemption on the least favorable date.

A bond's price expressed as a percentage of par value, with fractions carried to several decimal places. A price of 98.250 means 98.25 percent of face value, exclusive of accrued interest.

Interest earned by the seller since the last coupon date and paid by the buyer at settlement. Municipal bonds generally accrue interest on a 30/360 basis and trade with accrued interest added to the dollar price.

A nine-character alphanumeric identifier assigned to each municipal security so trades can be processed and compared precisely. It identifies the issuer, the issue, and the specific maturity within the issue.

Trading in a new municipal issue before the bonds are delivered, with settlement occurring after the closing date. Prices reflect the market's view of the deal and may move sharply before settlement.

A method of underwriting in which the issuer publishes an official notice of sale and awards the bonds to the bidder offering the lowest true interest cost or net interest cost on a set bid date.

A method of underwriting in which the issuer selects an underwriter in advance and works with that firm to structure, price, and distribute the bonds. It is common for complex or less familiar credits.

The document announcing a competitive bond sale. It states the issue size, maturities, bid deadline, good faith deposit requirements, and the criteria used to award the bonds.

A check or wire an underwriter submits with a competitive bid to guarantee performance. The winning bidder's deposit is applied to the purchase price, while deposits of unsuccessful bidders are returned.

The contract in a negotiated sale between the issuer and the underwriter. It sets the purchase price, settlement date, underwriter obligations, and the issuer's representations and covenants.

A group of broker-dealers that jointly bid for or purchase a new municipal issue and share the risk of distributing it. Members receive bond allotments and are compensated through the takedown.

Firms that help distribute a new municipal issue but are not syndicate members. They buy bonds from the syndicate at the reallowance price and carry no underwriting risk.

The discount from the public offering price that a syndicate member earns on bonds it sells. The reallowance is the portion of that takedown passed along to selling group firms.

The list of prices or yields at which each maturity of a new municipal issue is offered to the public. It reflects the underwriter's assessment of credit and market conditions across the yield curve.

An analysis, often prepared by an independent consultant, estimating whether a proposed revenue-producing project will generate enough income to cover operating costs and debt service.

The self-regulatory organization that writes rules for dealers and municipal advisors in the municipal securities market. Its rules are enforced by FINRA and the SEC rather than by the MSRB itself.

The MSRB's fair dealing rule. It requires dealers to act fairly and in good faith with all persons, disclose material information about a transaction, and avoid misleading customers about price, risk, or features.

The MSRB suitability rule. It requires a dealer to have reasonable grounds to believe a recommended municipal security suits the customer, based on the customer's financial situation, objectives, and risk tolerance.

The MSRB rule covering prices and commissions. It requires that a dealer's mark-up or mark-down, commission, and spread from the prevailing market price be fair and reasonable.

The MSRB pay-to-play rule. It bars dealers and municipal advisors from municipal securities business with an issuer for two years after certain political contributions to issuer officials, and requires disclosure of contributions and placements.

The MSRB disclosure rule requiring dealers to deliver an official statement to customers in a new issue by settlement and to show specified information on confirmations, including underwriter compensation and key bond features.

The SEC rule requiring an underwriter in most primary municipal offerings to obtain and review an official statement and to ensure the issuer commits to ongoing disclosure of annual information and specified event notices.

A written undertaking by the issuer to file annual financial information and notices of specified events with the MSRB's EMMA system, so investors keep receiving information after the bonds are sold.

A legal opinion, usually included with the official statement, stating that the bonds are validly issued and binding, and, for tax-exempt issues, that interest is excluded from gross income for federal income tax purposes.

The primary disclosure document for a municipal issue, prepared by the issuer with underwriter participation. It describes the bonds, the issuer's finances, project details, risks, and the bond counsel opinion.