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Advance Refunding

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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.

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.

advance refunding


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Unlike the typical advance refunding transaction where the new bond issue has a fixed interest rate, LIBOR-based advance refunding transactions have an underlying variable rate yield.
The alphabetically arranged entries provide concise definitions of terms such as insider trading, coterminous debt, reinvestment risk, convertible security, and advance refunding.
Among the provisions of most concern to state and local governments are the following: Eliminate advance refunding of governmental and 501(c)(3) bonds.
 
 
 
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