Massachusetts Order Refunding Bond
Description
How to fill out Order Refunding Bond?
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FAQ
Calling a bond means the bond can be called in advance than the maturity of the bond and it will be redeemed by the issuer. Bond refunding means retiring the bond at its maturity by using a new debt issue.
Generally unique to municipal securities, a refunding is the process by which an issuer refinances outstanding bonds by issuing new bonds. This may serve either to reduce the issuer's interest costs or to remove a restrictive covenant imposed by the terms of the bonds being refinanced.
Refunding bonds are bonds that are issued to replace and refinance outstanding general obligation or revenue bonds (chapter 39.53 RCW). The use of a refunding mechanism is often driven by the desire to lower interest rates and reduce payment amounts on older, more expensive debt.
For example, an issuer that refunds a $100 million bond issue with a 10% coupon at maturity and replaces it with a new $100 million issue (refunding bond issue) with a 6% coupon, will have savings of $4 million in interest expense per annum.
The bonds to be refunded are referred to as prior bonds or refunded bonds; the new bonds issued are referred to as the refunding bonds.
Bond refunding can be defined as a corporate financial planning activity undertaken to lower financing costs by retiring or repaying old outstanding bonds issued previously with high-interest rates with the help of proceeds collected from new debts, usually with lower interest rates.
Refunded bonds maintain a cash amount held aside by the original issuer of the debt to repay its principal. A refunded bond will use a sinking fund to hold in escrow the principal amount, making these bonds less risky to investors.
Example of Advance Refunding Advance refunding is popular in low-interest-rate environments, when bond issuers may seek to take advantage of lower rates by refinancing outstanding bonds that have not yet matured. For example, suppose a municipality wants to refinance its current unpaid bonds at a new, lesser rate.
