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By definition, the term ?refunding? means refinancing another debt obligation. It is not unheard of for municipalities to issue new bonds in order to raise funds to retire existing bonds. The bonds which are issued to refund older bonds are called refunding bonds or pre-refunding bonds.
A refunded bond should not be confused with a pre-refunding bond, which is a debt security that is issued in order to fund a callable bond. With a pre-refunding bond, the issuer decides to exercise its right to buy its bonds back before the scheduled maturity date.
A refunding is a means by which previously issued debt is retired or refinanced with an issue of bonds or other obligations whose proceeds are used to pay the principal, interest and any redemption premium for prior bonds.
Key Takeaways Refunding replaces outstanding callable bonds with new bonds, usually to refinance outstanding bond debt. Refunding may also be used to re-issue bonds that have more favorable terms and less restrictive covenants.
An advance refunding occurs when the refunded bonds are redeemed more than 90 days from the date the refunding bonds are issued and an irrevocable escrow account is established to make payments until the call date of the bonds.
What Is Crossover Refunding? Crossover refunding refers to the issuing of a new bond where the proceeds are placed in escrow to redeem a previously issued higher-interest bond.