Refunding Methods
Chapters in this video
- 0:00 Current versus advance refunding: the 90-day bright line
- 2:17 Pre-refunded bonds and the AAA rating from escrowed Treasuries
- 3:36 Tax Cuts and Jobs Act of 2017 elimination of tax-exempt advance refunding
- 4:02 Escrowed to maturity: Treasuries to final maturity, no early call
- 4:44 Crossover refunding: why escrow pays new bonds first
- 5:27 Direct exchange versus sale of new issue execution
- 5:56 Rapid-fire refunding exam recap
What this video covers
- The 90-day threshold that separates current refunding from advance refunding, and why no escrow is required for current refunding
- How advance refunding works: proceeds placed in escrow with United States Treasury securities to pay old bondholders until the call date
- Why pre-refunded bonds receive an AAA rating based on escrowed Treasuries, not the issuer's own credit quality
- The impact of the Tax Cuts and Jobs Act of 2017: tax-exempt advance refunding was eliminated, forcing issuers to use taxable bonds
- How escrowed to maturity (ETM) differs from standard advance refunding by holding Treasuries all the way to final maturity with no early call
- The crossover refunding mechanism, and the critical trap that the escrow pays the new bonds first until the crossover date
- Direct exchange versus sale of new issue as execution methods, and which is standard market practice
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. When you're ready to drill the topic, the full Series 7 course adds adaptive practice questions and spaced-repetition flashcards.
Start on this site: free Series 7 practice questions · Series 7 pass rate