Prerefunding

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Prerefunding

Procedure of floating a second bond at a lower interest rate in order to pay off the first bond at the first call date and to reduce overall borrowing costs.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Prerefunding

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 referred to as a prerefunded bond. Companies engage in prerefunding when more favorable interest rates become available, reducing the company's overall borrowing costs.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

prerefunding

The placing of funds with a trustee in order to retire a bond issue as a liability before the call date. Also called advance refunding. See also arbitrage bond.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Prerefunding.

Prerefunding may occur when a corporation plans to redeem a callable bond before its maturity date. If that's the case, the bond is identified as a pre-refunded bond.

To prerefund, the issuer sells a second bond with a longer maturity or a lower coupon rate, or both, and invests the amount it raises in US Treasury notes or other securities that are essentially free of default risk.

The specific securities are typically chosen because their maturity dates correspond to the date on which the company will use the money to redeem the first bond.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
--$87.6 million water and sewer system revenue bonds, series 2009 (pre-refunding), 2010, 2011, 2011A, 2012 and 2013;
Furthermore, some of the new tax-free strips are guaranteed by "pre-refunding." In other words, they are backed by United States Treasury bonds that have been purchased to guarantee payment if the municipality goes bankrupt, or is slow in paying investors when the bonds matures.
"This was a record year for muni bond funds because of pre-refunding, with billions flowing into new issues," says Robert W.
In addition, Fitch has affirmed the rating on the following outstanding obligations (pre-refunding) at 'AA':
--$993.7 million ENW Project 3 revenue bonds (pre-refunding);
--$3.1 billion (pre-refunding) general revenue bonds at 'AA+';
In addition, Fitch affirms the following ratings (pre-refunding) for SAWS:
It has withdrawn its ratings for the following bonds due to pre-refunding activity: San Juan Water District (CA) revenue certificates of participation series 2009A (pre-refunded maturities only - 798330BJ4, 798330BK1, 798330BL9, 798330BM7, 798330BN5, 798330BP0, 798330BQ8, 798330BR6, 798330BS4), which were previously rated 'AA'/Stable.
In addition, Fitch has withdrawn its ratings for the following bonds due to pre-refunding activity:
It affirms the 'AA+' rating on the outstanding series 2010 and 2014 revenue refunding bonds and the series 2004B (pre-refunding) variable rate water and sewer revenue bonds.
In addition, Fitch affirms the 'AA+' rating on the outstanding series 2010 and 2014 revenue refunding bonds and the series 2004B (pre-refunding) variable rate water and sewer revenue bonds.
--$70.8 million sales tax revenue bonds (limited tax bonds) 2009 series B and C (variable rate) (pre-refunding);