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KIC000084 - Types and Features of Munlclpal...

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Unformatted text preview: Types and Features of Munlclpal Securltles (contlnued) 4" Redemption Features 5‘ The municipal market has securities with various futures. These are zero-coupon bonds, floating-rate bonds. and potable bonds in the municipal bond merkel, ‘/ For this market. the“: or: twotypeo chem-coupon bonds i. One type is isswd It I very deep discount and mature: at par. 0 The dimmice between die par vnlne and the purchase price rlplfilllill a proddermined compound yield. 0 These zero-coupon bonds are similar to there issued in the taxable bond muket for Treasuries and corporates. ii. The second type is called I municipal "rump/in, o Thisis I hood issued at plrlhn has inmastp-yments. o The interest payments Ire not distributedtc the holder of the bond Ilnlli maturity. but the issunngrws to mini/entire undistrihuted interest pyrite-its II the band's yield to minority when u was issued :qymmc m Credit Risk 43- Although mimicipal bonds at one time were considered second in safely only to US. Treasury securities. today there are new concerns about their credit risks. '. The first concern came out of the New York City billion-dollar financial crisis in 1975. The second reason for concem about municipal securities credit risk is the proliferation in this market of innovative financing techniques to secure new bond issues. '6’ What distinguishes these newer bonds item the more traditionaf general obligation and revenue bonds is that there is no history of court decisions or other case law that f'u-m|y establishes the rights of the bondholders and the obligations of the issuers. ram. 1. mm Paint m nlflmutlnfinlfirx‘ u Credit Risk (continued) e As with corporate bonds. some institutional investors in the municipal bond market rely on their own in-house municipal credit analysts for determining the credit worthiness ofa municipal issue. )‘v Other inveltors rely on the nationally recognized rating companies. v:- The two leading rating companies an: Moody’s and Standard & Poor’s‘ and the assigned rating system is essentially the same as that used for corporate bonds. b Although there are numerous security structures for revenue bonds. the underlying principle in rating is whether the project being financed will generate sufiiCiem cash flow to satisfy the obligation: due bondholders. ‘ column-mew ...
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