Debt Management

There is hidden value for investors in callable taxables

The Bond Buyer - March 4, 2020

Commentary by Andy Kalotay in The Bond Buyer uncovers the hidden value in callable taxable munis. The calls are triggered by tax-exempt rates, while the bonds' worth depends on taxable rates.

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Life Without Advance Refunding

Municipal Finance Journal, Vol Volume 39 Number 03, Fall 2018

The elimination of advance refunding following the signing of the Tax Cuts and Jobs Act in December 2017 will have significant effects on the municipal market. In recent years, most municipal bonds aimed at institutional investors carried an above-market 5% coupon and had a 10-year call. The 5% NC-10 structure had wide appeal for a variety of reasons, a primary one being the bonds' eligibility for advance refunding. In the absence of advance refunding, the 5% NC-10 structure will lose much of its appeal.

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Municipal Bond Insurance: Identifying the Best Payment Plan

The Journal of Risk Finance Vol. 18 No. 1, 2017

The volume of municipal bond insurance declined dramatically following the financial crisis of 2008. Insurance now is making a gradual comeback. Two related considerations complicate identification of the best insurance plan. One is the current practice in the municipal market of issuing callable bonds with an above-market coupon; such bonds are very likely to be refunded. The other is that the cost of insurance may depend on when the bonds are refunded. This paper shows how contemporary fixed income analytics can be applied to identifying the best payment plan.

Don’t Waste a Free Lunch: Managing the Advance Refunding Option

Journal of Applied Corporate Finance

Making Bond Insurance Pay

The Bond Buyer, June 30, 2016

Optional redemption features are standard in municipal bond issues, so even a seemingly simple decision — selecting the best insurance plan — requires modern option-based analytics

The Pros and Cons of Premium Bonds

National Assoc. of Municipal Advisors, February 2015

The Bonds That Keep on Saving

Public Utilities Fortnightly

TVA's ratchet bonds are reset lower again.

Call to Issuers: You Pay for Your Options; Why Not Use Them Wisely?

GFOA TODAY, May 2011

Municipal bonds have traditionally been callable after ten years. Alternatives are seldom considered. This "NC-10 structure" is so entrenched that 'scales' showing new issue yields provided by Municipal Market Data and Municipal Market Advisors are for NC-10 bonds, rather than bullet maturities, as would be the norm in the taxable world.

Refunding by Rule-of-Thumb: A County Finance Fable

The Bond Buyer (March 25, 2011)

A tongue-in-cheek look at refunding practices

Making the Right Call

Credit (October 2010)

The tendency among municipal issuers to call their bonds early in the belief they are refunding on better terms often results in the loss of future value, to the detriment of the taxpayer.

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