a

advance refunding

The issuance of new debt securities to replace an older issue at least 90 days prior to the time when the older issue can be redeemed. Proceeds of the new refunding issue are held in escrow by a trustee who pays interest and principal when due. The older issue being refunded is usually called on the first permitted call date.

authentication

A manual certification, executed by the trustee (or its agent) under an indenture or a fiscal agent under a fiscal agency agreement, appearing on a bond or note and stating that it is one of the bonds or notes referred to in the relevant indenture or fiscal agency agreement.

b

bond counsel

An attorney (or firm) retained by the issuer to give a legal opinion that a municipal user is authorized to issue proposed securities and has met all legal requirements necessary for issuance and that the interest on the securities will be exempt from federal income tax, and where applicable, from state and local tax.

bond purchase agreement

The contract between the underwriter and the issuer setting forth the final terms, prices and conditions upon which the underwriter purchases a new issue of bonds for reoffering to the investing public.

bond registrar

bond resolution

The document(s) representing action of a municipal issuer authorizing the issuance and sale of securities. Such document will also describe the nature of the obligation and the issuer’s duties to the bondholders.

bond trustee

Ensures that bondholders are protected and that the issuer is performing its obligations according to the terms outlined in the bond indenture.

book-entry settlement

An accounting method for securities transactions and funds movements, whereby no physical movement of the certificates or funds is necessary. Instead, debits and offsetting credits (and vice versa) are posted to the accounts of the transaction’s principals.

These parties are usually members of the same securities depository or clearinghouse, the Federal Reserve System, or they maintain special accounts with a common bank or broker.

c

capitalization interest or funded interest

A portion of the proceeds of a bond issue set aside upon issuance of the bond to pay interest on the bond for a specified period of time. Interest is commonly capitalized during the construction period of a revenue-producing project.

conduit financing

Bonds issued by a governmental unit to finance a project to be used primarily by a third party, usually a corporation engaged in private enterprise. The security for such bonds is the credit of the private user rather than the governmental issuer.

Generally such bonds do not constitute obligations of the issuer because the corporate obligor is liable for generating the pledged revenues. Industrial revenue bonds are common examples of conduit financing.

cost of issuance

The expenses associated with the sale of a new issue of municipal securities, including such items as underwriter’s spread, printing, legal fees and rating costs.

credit enhancement

An external support of a debt obligation. Included are letters of credit, municipal bond insurance, and third party guarantees. Credit enhancement by an external source can lead to lower interest expense because rating agencies rate the financial institution providing the support rather than the municipality issuing the bonds.

credit facility trustee

Works directly with corporate trustees who also issue letters of credit enhancements while serving as corporate trustees. Holds the trustee institution’s letter of credit and draws upon that letter as directed by the trustee.

d

defeasance

A general term reflecting the termination of the rights and interests of bondholders and extinguishment of their lien on any property or collateral pursuant to the terms of an indenture or bond resolution. May also refer to the termination of an issuer’s obligation under such contracts upon the refunding of the issue or by provision for the future payment of interest and repayment of principal.

depository trust company (DTC)

A central securities certificate depository through which members effect security deliveries between each other via computerized bookkeeping entries thereby reducing the physical movement of stock certificates.

e

escrow

An agency providing for the physical holding of cash, securities or documents until certain conditions called for in an agreement between two parties are met.

escrow agent

An institution, usually a bank, designated by two parties or more to hold securities, funds or documents that are to be delivered upon compliance with the conditions contained in the escrow agreement, usually within a specified period of time.

f

financial advisor

With respect to a new issue of municipal bonds, a consultant who advises the issuer on matters pertinent to the issue, such as structure, timing, marketing, fairness of pricing, terms and bond ratings.

Such consultant may be employed in a capacity unrelated to a new issue of municipal securities, such as advising on cash flow and investment matters. The financial advisor is sometimes referred to as a fiscal consultant or fiscal agent.

Municipal Securities Rulemaking Board Rule G-23 provides that the financial advisor may: (1) negotiate an underwriting after certain disclosures, approval of the issuer and termination of the financial advisor relationship; and 2) bid in a competitive underwriting if the issuer gives written consent before the financial advisor bid is submitted.

g

general obligation bond (GO)

Municipal bond issues by any level of government within the United States government, which is backed by the full faith, credit and taxing power of the issuer.

i

indenture

A contract between the issuer of bonds or notes and a trustee under which such securities are to be issued setting forth the rights, duties and obligations of each, as well as the rights of the holders of the securities.

Issued to support the economic development of a community. Funds raised are used to construct facilities for lease to a corporation that will bring jobs to the community. Repayment is based on the corporation's lease payments.

institutional custody

Acts as a "financial secretary" for corporations and businesses, municipalities, nonprofit organizations, investment managers, unions and other entities. Provides physical custody of assets, collects and disburses dividends and interest, facilitates securities transactions as directed and provides detailed recordkeeping and reporting.

l

letter of credit

A financial instrument issued to a company (or individual) by a bank which substitutes the bank’s credit for the company’s (or individual’s) credit. Frequently used by companies ordering goods from foreign suppliers with which they have no credit relationship. Also used to guarantee payment of principal and interest of bond issues.

lower floater

General term for a security with a variable interest rate and also having a tender feature.

m

Municipal Securities Rulemaking Board (MSRB)

An independent, self-regulatory organization established by the Securities Act Amendments of 1975 that has rule-making authority over dealers, dealer banks, and brokers in municipal securities.

o

obligor

Every person who is liable upon a debt security, including a grantor.

official statement

A document published by a municipal issuer disclosing material information on a new issue, including purpose of issue, how such will be repaid and the financial, economic and social characteristics of the issuing entity.

p

payable date

1. The date established by a corporation’s board of directors for payment of a dividend to the stockholders of record, usually 15 to 20 days after record date; or
2. The date fixed in an indenture or bond resolution for the payment of interest or principal.

paying agent

An institution, normally a bank, authorized by the issuer to pay principal (premium if any) or interest on any debt securities on behalf of the issuer.

pooled mortgage custody

Provides physical custody of all documents and regulatory reporting.

preliminary official statement

A preliminary version of the official statement that is used by the issuer or underwriters to describe the proposed issue of municipal bonds prior to the determination of an interest rate and offering price.

The preliminary official statement is a marketing tool used to gauge the buyers’ interest in the issue and is relied upon by potential purchasers in making their investment decisions.

Normally, no offer for or acceptance of bonds can occur on the basis of the preliminary official statement, and a statement to that effect appears on the face of the document in red print, which gives the document its nickname, Red Herring.

Although the preliminary official statement is technically a draft, it must be substantially in the same form as the final official statement, and underwriters are reluctant to permit any substantial changes between the preliminary and final official statements.

private activity bonds

Bonds issued by a municipality which are not classified as governmental bonds. They are tax-exempt if they constitute qualified bonds as determined by the Tax Reform Act of 1986.

private placement

The disbursement of unregistered securities to a limited number of purchasers without the filing of a statement with the SEC. Such offerings generally require submission of an investment letter to the seller by all purchasers.

r

rating agency

A private company that rates the creditworthiness of bonds as a service to investors, such as the widely known rating agencies for tax-exempt bonds, Moody’s Investors Service, Standard and Poor’s Corporation and Fitch Investors Service, Inc.

rebate calculation

A mathematical calculation to determine if funds held in accounts for tax-free bonds issues have earned more than permitted by law (an amount greater than interest being paid on the outstanding tax-free bonds.) The calculation and any excess must be segregated and remitted to the Internal Revenue Service every five years.

record date

1. The date set by the directors of the corporation that determines eligibility to receive the current declared dividend.
2. In the case of bonds, the dates fixed in the indenture that determine eligibility to receive the current interest payment. The standard record dates are: the 15th day of the month preceding a payment on the 1st day of the following month: and the last business day of the month preceding payment on the 15th day of the following month.

reimbursement agreement

The agreement between the developer and the credit enhancement provider specifying how the credit enhancement provider will be reimbursed by the developer if it is called upon to make payment under the credit facility, establishing the fees of the credit enhancement provider and specifying the security which must be supplied by the developer.

remarketing agent

A bank or investment banking firm that agrees to remarket bonds which are tendered or “put” by their owners or purchased by the developer after their initial issuance. The original underwriter often also serves as remarketing agent.

revenue bond

A state or local government bond on which the interest and principal payments are met from the revenues produced by the project financed by the bond issue. Water, sewer, gas, and electrical facilities, roads and bridges are typical projects.

s

Securities and Exchange Commission (SEC)

An agency created by the Congress to regulate the securities market for the protection of investors.

sinking funds

The periodic retirement of portions of a debt issue before the stated maturity of the issue (by repayment or purchase), pursuant to the terms on an indenture.

state and local government series (SLGS)

United States government securities issued to municipalities at various interest rates to ensure that issues of tax-free bonds do not violate arbitrage rules. These bonds do not trade in the open market and are carried in book-entry form at the Federal Reserve only.

t

tender agent

Private financial institution, typically a bank, which will serve as agent for the trustee or the remarketing agent and accept bonds which are tendered or put under provisions allowing the bondholders to require the bonds issuer to repurchase the bonds at certain times or intervals.

transfer and dividend disbursing agent

BB&T provides for the registration and transfer of registered securities, dividend payments, dividend reinvestment services and tax reporting, and maintains records of issued and cancelled stock.