advance refunding

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Related to advance refunding: Pre-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.

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

References in periodicals archive ?
In the case of advance refunding bond escrows, the yield-restricted rate may be arrived at in either of two ways.
In July 1996, the IRS released Revenue Procedure 96-41, which outlined a voluntary closing agreement program for advance refunding escrows of state and local bonds.
Between 1990 and 1995, it is alleged by industry insiders and observers that Wall Street investment providers systematically and illegally overpriced advance refunding escrow investments.
The overpricing of open-market investments purchased for tax-exempt advance refunding bond escrows is commonly referred to as yield burning.
For an advance refunding, Mun-Ease sizes the escrow account where bond proceeds are to be placed until the refunded bonds are called.
The following is a simplified example of an advance refunding calculation.
A current refunding is less complicated and less costly than an advance refunding, since a current refunding does not require that the issuer establish an escrow account, hire a paying agent/registrar to administer the escrow account, obtain bond ratings on the refunded issue or verify the cash flow in the escrow account.
An advance refunding occurs when the refunded bonds are retired more than 90 days after the refunding bonds are sold.