An issue or escrow solution which will pay off the debt in the least amount of time under the given revenue constraint.
The sum of compounded interest which has accumulated plus the original issuance value of a capital appreciation bond on each interest payment date. Capital appreciation bonds accrete at the Interest Rate as entered in Data-Bond Component Maturity Date in Debt/Size.
(NLF) - In the sale of a new issue, the dollar amount of interest which has accrued on the bonds, based on the stated rates of interest, from the dated date up to, but not including, the delivery. Accrued interest is paid to the seller by the purchaser, and is usually calculated on a 360-day-year basis, assuming each month has 30 days (30/360 day basis).The formula is: Accrued Interest = interest rate * par value * (number of days / 360).
- Accrued interest on a new issue is treated as a source of funds for the financing.
- In the Refund and Monitor modules, accrued interest can refer to the bonds to be defeased (known as Prior Debt) and included in escrow requirements. This amount is equal to the interest accrued from the last interest payment on the refunded bonds to the delivery date on the new refunding issue. Finance can adjust the escrow requirements and savings calculations to include or exclude accrued interest on the refunded bonds (Prior Debt).
- DBC Finance also calculates the accrued interest at settlement on the securities which are purchased for escrow accounts, as part of the purchase price calculations. The day basis in these cases are appropriate for the type of securities purchased.
For bonds traded in the secondary market, the accrued interest is usually calculated from the most recent interest payment date, up to but not including the date of settlement.
(NLF) - Total (gross) bond interest less accrued interest on a Series, calculated as of the delivery date.
(NLF) - Total (gross) debt service less accrued interest on a Series, calculated as of the delivery date.
The refinancing of outstanding bonds through the issuance of a series of refunding bonds at least 90 days before the outstanding bonds are to be redeemed. Both the refunding issue (new debt) and the refunded bonds (prior debt) are outstanding from the delivery date of the refunding issue to the call date or redemption date of the refunded bonds. The prior debt has been defeased by the escrow account which resulted from the purchase of a portfolio of securities sufficient to pay debt service.Economic savings results only after the prior bonds are called and replaced by the refunding bonds at a lower interest rate.
The IRS restricts the yield which may be earned on the investment of the proceeds of refunding bonds (see: arbitrage yield, transferred proceeds penalty).
There are two methods of advance refunding: net cash refunding and full cash refunding.
In the net cash refunding the amount placed in the escrow is a principal amount of securities which, together with the interest earnings on that principal, will net sufficient funds to pay principal and interest on the refunded bonds.
In the full cash refunding, the escrow deposit is a principal amount which by itself (without interest earnings) is sufficient to pay all principal and interest on the refunded bonds. Finance-generate escrows assume a net cash refunding as interest earnings on the escrow securities are used to pay debt service on the refunded bonds.
Most advance refunding transactions have escrows outstanding only until the call date of the refunded bonds. These bonds have been 'esrowed to call'.
Bonds have been 'escrowed to maturity' when the escrow is sufficient to pay all principal and interest to the final maturity of the refunded bonds. No economic savings can occur in an escrow to maturity refunding.
In DBC Finance, Agency refers to a security type issued by US government agencies such as Ginnie Mae (GNMA), FannieMae (FNMA), FreddieMac (FHLMC) and SallieMae (SLMA). These securities are bonds which are not direct obligations of the U.S. government, but are guaranteed by the U.S. government in the event of default by the agency. Agency securities can be used in escrows for certain in-substance refundings, including synthetic refunding structures.
(NLF) -
(NLF) - This is a report which includes the debt service from the current issue and any "Other Debt Service" which is associated with this issue. Other Debt Service is debt service on existing bonds other than the current issue which can either be entered in the Miscellaneous - Other D/S screen in Debt/Size or be the debt service on unrefunded bonds set in Prior Debt in the Refund module.
The All-In True Interest Cost is the discount rate, assuming semiannual compounding and a 30/360-day calendar, which is the net present value (NPV) of all payments of principal, interest, and future expenses equal to the par amount of bonds plus accrued interest plus premium less original issue discount less insurance premium less costs of issuance less other up front expenses, as applicable. The cashflows can be discounted to either the delivery date or the dated date, and the default is to delivery date. Each expense can be included or excluded in the All-In TIC calculation (see Debt/Size Data-Expense description).
The process of paying the principal amount of a bond issue by periodic payments. Payments are usually calculated to include interest in addition to a partial payment of the original principal amount. See also: Debt service, Level debt service, Bond solutions
The difference between the yield on an issue of municipal bonds (tax-exempt) and the yield on securities (taxable, usually) purchased with the proceeds of municipal bonds. Bond proceeds are frequently used to purchase securities for Capitalized Interest Funds, Debt Service Reserve Funds, Construction Funds and Escrows. If the arbitrage yield on the bonds is greater than the yield on an investment, then the investment is said to have negative arbitrage associated with it. If the yield on the investment is greater than the yield on the bonds, then the investment is said to have positive arbitrage associated with it.
- The value of this arbitrage amount can be expressed either as a percentage difference in yields or as a gross dollar amount which is the difference between the present values of the investment's cashflows discounted at the yield on the investment and discounted at the yield on the bonds.
Bonds which violate Federal arbitrage regulations. If the IRS finds that bonds, the interest becomes taxable and therefore must be included in each bondholder's gross income for federal income tax purposes.
(NLF) - Overview: "In general...The yield on a fixed rate bond issue is the discount rate that, when used in computing the present value as of the issue [delivery] date of all unconditionally payable payments of principal, interest, and fees for qualified guarantee on the issue and amounts reasonably expected to be paid as fees for qualified guarantees on the issue, produces an amount equal to the present value, using the same discount rate, of the aggregate issue price of bonds of the issue as of the issue date. Further, payments include certain amounts properly allocable to a qualified hedge." {July 1993 final regulations - §1.148-4(b)(1)(i) }
- DBC Finance assumes that the aggregate issue price of the bonds is equal to the par amount of bonds plus accrued interest plus original issue premium less OID (original issue discount) less up-front costs of credit enhancement (bond insurance usually). Conventionally, semiannual compounding, a 30/360-day calendar, and 6-decimal precision are assumed in discounting the future cashflows.
- As described in 7/1993 §1.148-4(b)(2)(ii), if a term bond has excessive OID (%OID greater than 0.25% * weighted average life of the term bond principal), then the arbitrage yield computation must be modified slightly: the sinking fund payments are valued NOT at par, but at the present value (discounted at the yield to final maturity of the term bond) of the sinking fund principal paid at final maturity with interest. This occurs only if the OID is excessive. The Proof of Arbitrage Yield report shows the necessary details of the calculation.
Please refer questions on implementation and interpretation to issuer's bond and tax counsels.
The weighted average coupon of a Series, computed as the gross amount of bond interest divided by the number of bond years. The total amount of bond years is equal to the sum of each principal amount multiplied by the number of years that the principal is outstanding. This calculation uses a 30/360-day calendar and time is measured from the dated date. Gross interest includes accrued interest at delivery.
The weighted average maturity in years of a Series or a bond component, computed as the total number of bond years divided by the total principal amount. DBC Finance computes average life from the delivery date of the Series or bond component using a 30/360-day calendar as the default. Average life can also be calculated from the dated date, and this option is available in Utility- System Preferences. Average life reflects how rapidly principal is expected to be paid off.
See Average Life.
The average takedown is the total amount of takedown (sales concession plus additional takedown) expressed as a dollar amount per $1000 par amount of bonds ($/bond).
- If the Average Takedown field in the Data-General Assumptions in Debt/Size is used, then this data-field overrides all Takedowns in Data-Bond Components.
- If takedowns ($/bond) is entered for bond maturities in Data-Bond Component Maturity, then DBC Finance calculates the Average Takedown by dividing the total amount of takedown by the par amount of bonds and multiplying by 1000. Even if the takedown on a particular bond component is based on either Par + Premium/(Discount) or Maturity Value, the Average Takedown is still calculated using the total issue par amount for the denominator.
- An option is available to round the Average Takedown to the nearest $0.01/bond in Utility-System Preferences. If this is used, the rounded $/bond Average Takedown will override the maturity level takedown amounts.