Refunding Methods
Chapters in this video
- 0:00 Mayor Mike, Carla, and why issuers refund
- 1:13 The 90-day bright line: current vs advance
- 2:01 Advance refunding and the escrowed Treasury vault
- 3:43 The 2017 TCJA tax-exempt advance refunding ban
- 4:16 Escrow to maturity and the "defeased" trap
- 5:10 Crossover refunding: the escrow pays new bonds first
- 6:28 Rapid-fire exam recap
What this video covers
- The 90-day bright line that separates current refunding from advance refunding, and why the exam tests this threshold constantly
- How an advance refunding (pre-refunding) escrow works, and why the escrowed United States (U.S.) Treasuries pay debt service on the old bonds until the call date
- Why pre-refunded bonds get a AAA rating from the escrowed Treasuries, not from the issuer's own credit
- The Tax Cuts and Jobs Act (TCJA) of 2017 rule that eliminated tax-exempt advance refunding, and why issuers must now use taxable bonds
- What escrow to maturity (ETM) means, including the "defeased" vocabulary the exam loves to test
- How a crossover refunding flips the standard escrow flow: the escrow pays the NEW bonds first, then crosses over to retire the old bonds at the call date
- The practical difference between a direct exchange and a sale of a new issue to fund the refunding
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