《債券市場：分析與策略（第七版）》Ch08

Chapter8

MunicipalSecurities

8-1Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallLearningObjectivesAfterreadingthischapter,youwillunderstandthetwobasicsecuritystructures:tax-backeddebtandrevenuebondstheflowoffundsstructureforrevenuebondsmunicipalbondswithhybridstructuresandspecialbondsecuritystructuressuchasrefundedbondsandinsuredmunicipalbondsthedifferenttypesoftax-exemptshort-termmunicipalsecuritieswhatmunicipalderivativesecuritiesare8-2Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallLearningObjectives(continued)Afterreadingthischapter,youwillunderstandthetwobasicsecuritystructures:tax-backeddebtandrevenuebondshowmunicipalinversefloatersarecreatedthetaxriskthatinvestorsfacewheninvestinginmunicipalsecuritiesyieldspreadswithinthemunicipalmarkettheshapeofthemunicipalyieldcurvetheprimaryandsecondarymarketsformunicipalsecuritiesthetaxablemunicipalbondmarket8-3Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecuritiesTherearebasicallytwodifferenttypesofmunicipalbondsecuritystructures:tax-backedbondsrevenuebondsTherearealsosecuritiesthatsharecharacteristicsofbothtax-backedandrevenuebonds.8-4Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)Tax-BackedDebtTax-backeddebtobligationsareinstrumentsissuedbystates,counties,specialdistricts,cities,towns,andschooldistrictsthataresecuredbysomeformoftaxrevenue.Tax-backeddebtincludesgeneralobligationdebt,appropriation-backedobligations,anddebtobligationssupportedbypubliccreditenhancementprograms.8-5Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)Tax-BackedDebtThebroadesttypeoftax-backeddebtisgeneralobligationdebt.Anunlimitedtaxgeneralobligationdebtisthestrongerformofgeneralobligationpledgeasitissecuredbytheissuer’sunlimitedtaxingpower.Alimitedtaxgeneralobligationdebtisalimitedtaxpledgebecauseforsuchdebtthereisastatutorylimitontaxratesthattheissuermaylevytoservicethedebt.8-6Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)Tax-BackedDebtAgenciesorauthoritiesofseveralstateshaveissuedbondsthatcarryapotentialstateliabilityformakingupshortfallsintheissuingentity’sobligation.However,thestate’spledgeisnotbinding.Debtobligationswiththisnonbindingpledgeoftaxrevenuearecalledmoralobligationbonds.8-7Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)RevenueBondsThesecondbasictypeofsecuritystructureisfoundinarevenuebond.Suchbondsareissuedforeitherprojectorenterprisefinancingsinwhichthebondissuerspledgetothebondholderstherevenuesgeneratedbytheoperatingprojectsfinanced.Forarevenuebond,therevenueoftheenterpriseispledgedtoservicethedebtoftheissue.Thedetailsofhowrevenuereceivedbytheenterprisewillbedisbursedaresetforthinthetrustindenture.8-8Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)RevenueBondsTherearevariousrestrictivecovenantsincludedinthetrustindentureforarevenuebondtoprotectthebondholders.Arate,orusercharge,covenantdictateshowchargeswillbesetontheproductorservicesoldbytheenterprise.Othercovenantsspecifythatthefacilitymaynotbesoldtheamountofinsurancetobemaintainedrequirementsforrecordkeepingandfortheauditingoftheenterprise’sfinancialstatementsbyanindependentaccountingfirmrequirementsformaintainingthefacilitiesingoodorder8-9Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)RevenueBondsExamplesofrevenuebondsinclude:AirportRevenueBondsHigherEducationBondsHospitalRevenueBondsSingle-FamilyMortgageRevenueBondsMultifamilyRevenueBondsPublicPowerRevenueBondsResourceRecoveryRevenueBondsStudentLoanRevenueBondsTollRoadandGasTaxRevenueBondsWaterRevenueBondsPollutionControlRevenueandIndustrialDevelopmentRevenueBonds8-10Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)HybridandSpecialBondSecuritiesSomemunicipalbondsthathavethebasiccharacteristicsofgeneralobligationbondsandrevenuebondshavemoreissue-specificstructuresaswell.Someexamplesareinsuredbondsbank-backedmunicipalbondsrefundedbondsstructured/asset-backedsecurities“troubledcity”bailoutbonds8-11Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)HybridandSpecialBondSecuritiesInsuredbonds,inadditiontobeingsecuredbytheissuer’srevenue,arealsobackedbyinsurancepolicieswrittenbycommercialinsurancecompanies.Becausemunicipalbondinsurancereducescreditriskfortheinvestor,themarketabilityofcertainmunicipalbondscanbegreatlyexpanded.Therearetwomajorgroupsofmunicipalbondinsurers.Thefirstincludesthemonolinecompaniesthatareprimarilyinthebusinessofinsuringmunicipalbonds.Thesecondgroupofmunicipalbondinsurersincludesthemultilinepropertyandcasualtycompaniesthatusuallyhaveawidebaseofbusiness,includinginsuranceforfires,collisions,hurricanes,andhealthproblems.8-12Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)HybridandSpecialBondSecuritiesSincethe1980s,municipalobligationshavebeenincreasinglysupportedbyvarioustypesofcreditfacilitiesprovidedbycommercialbanks.Therearethreebasictypesofbanksupport:letterofcredit,irrevocablelineofcredit,andrevolvinglineofcredit.Aletter-of-creditagreementisthestrongesttypeofsupportavailablefromacommercialbank.Underthisarrangement,thebankisrequiredtoadvancefundstothetrusteeifadefaulthasoccurred.Anirrevocablelineofcreditisnotaguaranteeofthebondissue,althoughitdoesprovidealevelofsecurity.Arevolvinglineofcreditisaliquidity-typecreditfacilitythatprovidesasourceofliquidityforpaymentofmaturingdebtintheeventthatnootherfundsoftheissuerarecurrentlyavailable.8-13Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)HybridandSpecialBondSecuritiesAlthoughoriginallyissuedaseitherrevenueorgeneralobligationbonds,municipalsaresometimesrefunded.ArefundingusuallyoccurswhentheoriginalbondsareescrowedorcollateralizedbydirectobligationsguaranteedbytheU.S.government.Theescrowfundforarefundedmunicipalbondcanbestructuredsothattherefundedbondsaretobecalledatthefirstpossiblecalldateorasubsequentcalldateestablishedintheoriginalbondindenture.Suchbondsareknownasprerefundedmunicipalbonds.Althoughrefundedbondsareusuallyretiredattheirfirstorsubsequentcalldate,somearestructuredtomatchthedebtobligationtotheretirementdate.Suchbondsareknownasescrowed-to-maturity

bonds.8-14Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)HybridandSpecialBondSecuritiesTherearethreereasonswhyamunicipalissuermayrefundanissuebycreatinganescrowfund.Manyrefundedissueswereoriginallyissuedasrevenuebonds.Someissuesarerefundedinordertoalterthematurityscheduleoftheobligation.Wheninterestrateshavedeclinedafteramunicipalsecurityhasbeenissued,thereisataxarbitrageopportunityavailabletotheissuerbypayingexistingbondholdersalowerinterestrateandusingtheproceedstocreateaportfolioofU.S.governmentsecuritiespayingahigherinterestrate.8-15Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)RedemptionFeaturesMunicipalbondsareissuedwithoneoftwodebtretirementstructures,oracombination.Eitherabondhasaserialmaturitystructureorithasatermmaturitystructure.Aserialmaturitystructurerequiresaportionofthedebtobligationtoberetiredeachyear.Atermmaturitystructureprovidesforthedebtobligationtoberepaidonafinaldate.Municipalbondsmaybecalledpriortothestatedmaturitydate,eitheraccordingtoamandatorysinkingfundorattheoptionoftheissuer.8-16Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallTypesandFeaturesofMunicipalSecurities(continued)RedemptionFeaturesThemunicipalmarkethassecuritieswithvariousfeatures.Thesearezero-couponbonds,floating-ratebonds,andputablebondsinthemunicipalbondmarket.Forthismarket,therearetwotypesofzero-couponbonds.Onetypeisissuedataverydeepdiscountandmaturesatpar.Thedifferencebetweentheparvalueandthepurchasepricerepresentsapredeterminedcompoundyield.Thesezero-couponbondsaresimilartothoseissuedinthetaxablebondmarketforTreasuriesandcorporates.Thesecondtypeiscalledamunicipalmultiplier.Thisisabondissuedatparthathasinterestpayments.Theinterestpaymentsarenotdistributedtotheholderofthebonduntilmaturity,buttheissueragreestoreinvesttheundistributedinterestpaymentsatthebond’syieldtomaturitywhenitwasissued.8-17Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallMunicipalMoneyMarketProductsTax-exemptmoneymarketproductsinclude:notescommercialpapervariable-ratedemandobligationsahybridofthelasttwoproducts8-18Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallMunicipalMoneyMarketProducts(continued)Municipalnotesincludetaxanticipationnotes(TANs),revenueanticipationnotes(RANs),grantanticipationnotes(GANs),andbondanticipationnotes(BANs).Thesearetemporaryborrowingsbystates,localgovernments,andspecialjurisdictions.Usually,notesareissuedforaperiodof12months,althoughitisnotuncommonfornotestobeissuedforperiodsasshortasthreemonthsandforaslongasthreeyears.TANsandRANs(alsoknownasTRANs)areissuedinanticipationofthecollectionoftaxesorotherexpectedrevenues.Theseareborrowingstoevenoutirregularflowsintothetreasuriesoftheissuingentity.BANsareissuedinanticipationofthesaleoflong-termbonds.8-19Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallMunicipalMoneyMarketProducts(continued)Tax-ExemptCommercialPaperAswithcommercialpaperissuedbycorporations,tax-exemptcommercialpaperisusedbymunicipalitiestoraisefundsonashort-termbasisrangingfromoneto270days.Thedealersetsinterestratesforvariousmaturitydatesandtheinvestorthenselectsthedesireddate.Variable-RateDemandObligationsVariable-ratedemandobligations(VRDOs)arefloating-rateobligationsthathaveanominallong-termmaturitybuthaveacouponratethatisreseteitherdailyoreverysevendays.Theinvestorhasanoptiontoputtheissuebacktothetrusteeatanytimewithsevendays’notice.Theputpriceisparplusaccruedinterest.8-20Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallMunicipalMoneyMarketProducts

(continued)CommercialPaper/VRDOHybridThecommercialpaper/VRDOhybridiscustomizedtomeetthecashflowneedsofaninvestor.Aswithtax-exemptcommercialpaper,thereisflexibilityinstructuringthematurity,becausetheremarketingagentestablishesinterestratesforarangeofmaturities.Althoughtheinstrumentmayhavealongnominalmaturity,thereisaputprovision,aswithaVRDO.8-21Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallMunicipalDerivativeSecurities

(continued)Inrecentyears,anumberofmunicipalproductshavebeencreatedfromthebasicfixed-ratemunicipalbond.Thishasbeendonebysplittingupcashflowsofnewlyissuedbondsaswellasbondsexistinginthesecondarymarkets.Theseproductshavebeencreatedbydividingthecouponinterestpaymentsandprincipalpaymentsintotwoormorebondclasses,ortranches.Thenamederivativesecuritieshavebeenattributedtothesebondclassesbecausetheyderivetheirvaluefromtheunderlyingfixed-ratemunicipalbond.8-22Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallMunicipalDerivativeSecurities

(continued)Floaters/InverseFloatersAcommontypeofderivativesecurityisoneinwhichtwoclassesofsecurities,afloating-ratesecurityandaninverse-floating-ratebond,arecreatedfromafixed-ratebond.Thecouponrateonthefloating-ratesecurityisresetbasedontheresultsofaDutchauction.Inversefloaterscanbecreatedinoneofthreeways:Amunicipaldealercanbuyinthesecondarymarketafixed-ratemunicipalbondandplaceitinatrustwiththetrustissuingafloaterandaninversefloater.AsillustratedinExhibit8-1(seeOverhead8-24),themunicipaldealerusesanewlyissuedmunicipalbondtocreateafloaterandaninversefloater.Usingthemunicipalswapsmarket,onecreatesaninversefloaterwithouttheneedtocreateafloater.8-23Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallExhibit8-1

CreationofaMunicipalInverseFloaterMunicipalfloating-ratebondMunicipalinverse-floating-rateFixed-ratemunicipalbond(newlyissuedorseasoned)8-24Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallMunicipalDerivativeSecurities

(continued)StripsandPartialStripsMunicipalstripobligationsarecreatedwhenamunicipalbond’scashflowsareusedtobackzero-couponinstruments.Thematurityvalueofeachzero-couponbondrepresentsacashflowontheunderlyingsecurity.Partialstripshavealsobeencreatedfromcashbonds,whicharezero-couponinstrumentstoaparticulardate,suchasacalldate,andthenconvertedintocouponpayinginstruments.Thesearecalledconvertibles

orstep-upbonds.Otherproductscanbecreatedbyallocatingtheinterestpaymentsandprincipalofafixed-coupon-ratemunicipalbondtomorethantwobondclasses.8-25Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallCreditRiskAlthoughmunicipalbondsatonetimewereconsideredsecondinsafetyonlytoU.S.Treasurysecurities,todaytherearenewconcernsabouttheircreditrisks.ThefirstconcerncameoutoftheNewYorkCitybillion-dollarfinancialcrisisin1975.Thesecondreasonforconcernaboutmunicipalsecuritiescreditriskistheproliferationinthismarketofinnovativefinancingtechniquestosecurenewbondissues.Whatdistinguishesthesenewerbondsfromthemoretraditionalgeneralobligationandrevenuebondsisthatthereisnohistoryofcourtdecisionsorothercaselawthatfirmlyestablishestherightsofthebondholdersandtheobligationsoftheissuers.8-26Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallCreditRisk(continued)Aswithcorporatebonds,someinstitutionalinvestorsinthemunicipalbondmarketrelyontheirownin-housemunicipalcreditanalystsfordeterminingthecreditworthinessofamunicipalissue.Otherinvestorsrelyonthenationallyrecognizedratingcompanies.ThetwoleadingratingcompaniesareMoody’sandStandard&Poor’s,andtheassignedratingsystemisessentiallythesameasthatusedforcorporatebonds.Althoughtherearenumeroussecuritystructuresforrevenuebonds,theunderlyingprincipleinratingiswhethertheprojectbeingfinancedwillgeneratesufficientcashflowtosatisfytheobligationsduebondholders.8-27Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallRisksAssociatedwithInvestinginMunicipalSecuritiesTheinvestorinmunicipalsecuritiesisexposedtothesamerisksaffectingcorporatebondsplusanadditionalonethatmaybelabeledtaxrisk.Therearetwotypesoftaxrisktowhichtax-exemptmunicipalsecuritiesbuyersareexposed.Thefirstistheriskthatthefederalincometaxratewillbereduced.Thesecondtypeoftaxriskisthatamunicipalbondissuedasatax-exemptissuemayeventuallybedeclaredtobetaxablebytheInternalRevenueService.8-28Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallCopyright?2010PearsonEducation,Inc.PublishingasPrenticeHallYieldsonMunicipalBondsAcommonyieldmeasureusedtocomparetheyieldonatax-exemptmunicipalbondwithacomparabletaxablebondistheequivalenttaxableyield,whichiscomputedas:Example:Supposethataninvestorinthe40%marginaltaxbracketisconsideringtheacquisitionofatax-exemptmunicipalbondthatoffersayieldof6.5%.Whatistheequivalenttaxableyield?8-298-30YieldsonMunicipalBonds

(continued)Becauseofthetax-exemptfeatureofmunicipalbonds,theyieldonmunicipalbondsislessthanthatonTreasurieswiththesamematurity.TheyieldonmunicipalbondsiscomparedtotheyieldonTreasurybondswiththesamematuritybycomputingthefollowingratio:Yieldspreadswithinthemunicipalbondmarketareattributabletodifferencesbetweencreditratings(qualityspreads),sectorswithinmarkets(intramarketspreads),anddifferencesbetweenmaturities(maturityspreads).Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallMunicipalBondMarketPrimaryMarketMunicipalobligationsarebroughttomarketweekly.Astateorlocalgovernmentcanmarketitsnewissuebyofferingbondspubliclytotheinvestingcommunityorbyplacingthemprivatelywithasmallgroupofinvestors.Whenapublicofferingisselected,theissueusuallyisunderwrittenbyinvestmentbankersand/ormunicipalbonddepartmentsofcommercialbanks.Moststatesmandatethatgeneralobligationissuesbemarketedthroughcompetitivebidding,butgenerallythisisnotrequiredforrevenuebonds.Anofficialstatementdescribingtheissueandtheissuerispreparedfornewofferings.Municipalbondshavelegalopinionsthataresummarizedintheofficialstatement.8-31Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallMunicipalBondMarket(continued)SecondaryMarketMunicipalbondsaretradedintheover-the-countermarketsupportedbymunicipalbonddealersacrossthecountry.Marketsaremaintainedonsmallerissuers(referredtoaslocalgeneralcredits)byregionalbrokeragefirms,localbanks,andbysomeofthelargerWallStreetfirms.Largerissuers(referredtoasgeneralnames)aresupportedbythelargerbrokeragefirmsandbanks,manyofwhomhaveinvestmentbankingrelationshipswiththeseissuers.8-32Copyright?2010PearsonEducation,Inc.PublishingasPrenticeHallMunicipalBondMarket

(continued)SecondaryMarketTheconventionforbothcorporateandTreasurybondsistoquotepricesasapercentageofparvalue