Filter by Categories
Accounting
Banking

Finance




Pre-Refunded Bond


A bond which is mainly issued to refinance previously issued bonds that carry higher coupons than current market. A pre-refunded bond allows the municipal issuer to refund its debt long before the first call date. When interest rates plummet, and the Treasury bonds yield more than municipal bonds, issuers can use pre-refunded bonds to refinance their original debt in advance. The proceeds from these bonds are used to acquire a portfolio of Treasury securities whose cash flows match the principal and interest payment schedule of the original issue.

The portfolio of Treasuries is assigned as an escrow which guarantees retirement of the original debt at the first call date. Once the escrow is formed, the payment source for the original bonds is transferred to the pre-refunded bonds. In effect, this will help reduce the cost of capital for the municipal issuer, while transforming the original issue to a new one.

This bond is also known as an advance refunding bond, an escrowed bond, or an escrowed to maturity bond.



ABC
Finance, as a field of knowledge, is substantially wide-ranging and virtually encompasses everything in the realm of corporate finance, financial management, ...
Watch on Youtube
Remember to read our privacy policy before submission of your comments or any suggestions. Please keep comments relevant, respectful, and as much concise as possible. By commenting you are required to follow our community guidelines.

Comments


    Leave Your Comment

    Your email address will not be published.*