Advance Refunding

Advance refunding

In the context of municipal bonds, refers to the sale of new bonds (the refunding issue) before the first call date of old bonds (the issue to be refunded). The refunding issue usually specifies a rate lower than the issue to be refunded, and the proceeds are invested, usually in government securities, until the higher-rate bonds become callable. See: Refunding escrow deposits.

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Advance Refunding

The act or practice of a company issuing a second bond with a lower coupon rate in order to pay off a previously issued callable bond. In this circumstance, the callable bond is known as a prerefunded bond. Companies engage in advance refunding when more favorable interest rates become available, which reduces the company's overall borrowing costs.

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advance refunding

See prerefunding.