Call
The exercise of the right of the issuer to prepay a bond prior
to the specified maturity date and demand surrender of its bond
for redemption, refunding or sinking fund purposes on a specific
date at a specified price. The issuer is said to "call the
bonds" by giving notice in a manner described in the trust
indenture.
Call Denomination
The number of bonds called by Refund must be an integral multiple
of this number. If no call denomination is entered in Data-Bond
Component Maturity Data, then the issuance denomination will be
used for calling bonds.
This may be important to use in Bond Component Maturity Data for
the accuracy of calculations related to the calling of bonds paying
interest at maturity (i.e., CAB's).
Call Features
The terms of the indenture giving the issuer the right or requiring
the issuer to redeem or call all or a portion of an outstanding
issue of bonds prior to their stated maturities at specified prices.
- In structuring an advance refunding, the issuer is usually
exercising an Optional Redemption Provision in which case
the issuer has the right to redeem bonds, usually after a stated
date and at some price (a premium) greater than par/accreted value,
but is not required to do so.
- Term bonds generally have a predetermined Mandatory Redemption
Schedule which gives a fixed schedule of dates and
principal amounts to be redeemed by the trustee from issuer or
estate funds. Mandatory Redemption of term bonds via Sinking
Fund Installments are treated as separate maturities within a
single term bond component in Debt/Size. These calls are usually
at par plus accrued interest.
- Other types of calls are Extraordinary Optional Redemptions
which allow the issuer to call or redeem bonds upon the occurrence
of certain events, and Extraordinary Mandatory Redemptions
which are required calls based on the occurrence of certain events,
(e.g., the change in the use of a facility originally financed
by private activity bonds).
- When a bond has no optional call provisions, it is said to
be non-callable, abbreviated N/C or N.C.
Call Premium
This is the amount of money that must be paid to the bondholder
in addition to the par amount/accreted value of the bond in order
to exercise a redemption provision. Premiums are usually associated
with optional call provisions. When a bond is said to be "callable
on 11/1/1999 at 102", the first optional call date is on 11/1/1999
and the call price is 102%, of which the 2% above par is the call
premium expressed as a percentage of par (or accreted value in
the case of most callable CABs).
- In Debt/Size, this call premium is specified in Data-Calls-Premium
Tables Definitions.
- In Refund, the call premium is shown as a gross dollar amount
in the Escrow Requirement Report. When calculating debt service
to the call date in Debt/Size, the call premium is shown in the
Bond Debt Service report.
Call Price
The call price is the percentage of par (or accreted value) which
must be paid to exercise a call option.
- In Debt/Size, the call price for an outstanding issue of bonds
is entered in a table in Calls-Premium Tables. These premium
tables are normally used to specify the call to be used by Monitor
and Refund to assess the potential savings from refunding a bond
and to structure the refunding escrow if this bond is to be refunded
to a call date. They are also used to calculate debt service
to call.
- For Capital Appreciation Bonds, the Call Price is the percentage
of the accreted value of the CAB on the call date.
Call Protection
Any legal measure that reduces the probability of a bond being
redeemed prior to maturity. Protected bonds include non-callable
bonds, discount bonds, and deep-discount bonds.
Canadian Interest Cost (CIC)
See True Interest Cost (TIC).
Capital Appreciation Bond (CAB)
A bond which pays no interest on a periodic basis, but accretes
in value from the date of issuance (delivery date) to the date
of maturity. CABs usually accrete to a future denomination of
$5,000 and are sold at a deep discount to $5,000. However, the
discounted purchase price is considered the Par Amount of the
CAB maturity. CABs are sold with a stated accretion rate and
accretion table which demonstrates how the interest that would
be paid on a current-interest bond is instead compounded on a
periodic basis, reinvesting the interest at the same rate for
the life of the bond. At maturity, the investor receives the
original par amount plus all the accreted interest, which together
is usually a multiple of $5,000.
Capitalized Interest Fund
An account funded by bond proceeds and used to pay interest on
the bond issue for a specific period of time, usually from closing
to the end of construction period of a project. This project
will produce revenues necessary to pay debt service after the
capitalized interest fund has been exhausted. Capitalized interest
periods normally pay interest between 6 months and 3 years.
- The fund is said to be gross-funded if the full amount of
the interest payment requirements is deposited into the fund at
closing, and the interest earnings flow into another fund.
- The fund is said to be net-funded if the amount deposited
into the fund plus the interest earnings on the fund are used
to pay debt service during the capitalized interest period.
- If the interest earnings on the capitalized interest fund
and the interest earnings from another fund pledged to the bonds
are to be used to pay debt service, then the capitalized interest
fund is said to be surplus-funded.
Cash
An investment which earns no interest and has no market risk with
a denomination of $0.01.
Cashflow
A type of escrow security generated by DBC Finance when the available
securities for an escrow is set to PV.
Closing Date
Synonymous with Delivery Date, Settlement Date and Date of Issuance.
The delivery of the bonds is made to the investors in exchange
for the purchase price. This is generally the date that underwriters
get paid.
Compounded Interest
The interest which is accumulated and compounded over the life
of a CAB and is finally paid at the maturity of the CAB. The
compounding period is usually semiannual.
Convertible CAB
A convertible capital appreciation bond is a bond which compounds
interest (as a CAB does) for a fixed period of time, usually between
5 and 10 years, and then pays interest periodically like a normal
serial or term bond. The conversion date is the final compounding
date for the accretion period at which time the bond begins to
accrue and pay interest on a semiannual basis. Convertible CABs
usually accrete to an integral $1000 or $5000 denomination at
the conversion date. See also Capital Appreciation Bond.
Cost of Issuance
All expenses associated with the sale of a new issue which are
not part of the Underwriter's Discount. These can include legal
fees, printing costs, and rating agency fees among others. Cost
of Issuance can be recovered from bond proceeds, and are included
in the calculation of the All-In TIC as a deduction from bond
proceeds for the PV target.
See the Data-General Bond Information and its Detail Cost of Issuance
screen.
See 2% Limit.
Coupon
The annual interest rate of a bond.
Also can be used to describe a single interest payment (e.g. "first
coupon date").
Also refers to the method of payment of interest for municipal
bonds which are bearer bonds. Investors needed to 'clip coupons',
send them to the bond trustee and then the trustee would pay the
coupon. Today's municipal bonds are registered bonds, and holders
are sent the periodic interest payment by the trustee/paying agent.
Coverage Factor
The ratio of annual revenues available to pay scheduled debt service,
compared to the annual debt service requirement. The ratio is
an indication of the margin of safety for payment of debt service.
This ratio is important in a typical revenue bond financing.
Example: $2,000,000 of revenues/debt service requirements = 1.66.
The inverse of this ratio is known as the Tax Levy, which is typically
important for general obligation financings.
Crossover Date
The last call date on the refunded bonds in a crossover refunding.
This is also the date of the last interest payment date on the
refunding bonds which was defeased in the escrow.
Crossover Refunding
A refunding transaction which is an economic defeasance rather
than a legal defeasance since only the principal is defeased on
the refunded bonds to the call date. Also, the interest on the
refunding bonds is defeased until the call date on the refunded
bonds, which is known as the crossover date. Before the crossover
date, the issuer is paying interest on the old bonds and principal
on the new bonds; afterward, the issuer pays normal debt service
on the refunding bonds as the refunded bonds will be retired.
The defeasance requirements for a crossover refunding are set
in Refund's Prior Debt screen. Monitor does not screen bonds
for efficiency of a crossover refunding. Since this is not a
legal defeasance, it is not subject to transferred proceeds regulations
and the escrow can be invested in higher yielding securities issued
by government agencies and the like. Savings are deferred until
after the crossover date.
CUSIP
Abbreviation for the Committee on Uniform Security Identification
Procedures. A bond's CUSIP is an alphanumeric identification
code, usually 9 characters, assigned each maturity of a bond issue
and is printed on the face of each individual bond. All Treasury,
agency, and municipal bonds are assigned a CUSIP number prior
to pricing.
