Coupon interest accumulated on a bond or note since the last interest payment or, for a new issue, from the dated date to the date of delivery. Since interest on municipal bonds is payable semi-annually, every six months, when you buy a bond in mid-term you are only entitled to the interest the bond earns after you buy it. The interest earned previously, the accrued interest, belongs to the seller. Some first-time bond buyers think this payment is a hidden charge or fee, not realizing that they will get it back in full at the next interest payment date as tax-free interest.
Asset-Backed Security.
Securities for which the income and principal payments are secured by specific assets such as a pool of mortgages or car loans.
A term used in stating bond interest. One one-hundreth of one percent (1/100 % or 0.01 percent).
Bearer Bond.
A bond that has no identification of the owner of the security. It is presumed to be owned by the person who holds it.
Bond or Note.
A security whereby an issuer borrows money from an investor and agrees, by written contract, to pay a fixed principal sum on a specified date (maturity date) and at a specified rate of interest.
Book-Entry.
A system of security ownership in which the ownership is held as a computer entry on the records of a central company for its owner. The bond owner gets a computer printout as proof of ownership.
A bond issue, which may be redeemed before maturity under specific conditions spelled out in the indenture's provisions.
Certificates of Participation (COPs).
A form of lease revenue bond that permits the investor to participate in a stream of lease payments, installment payments or loan payments relating to the acquisition or construction of specific equipment, land or facilities.
Collateral Agent.
A bank and often the trustee, that serves as an agent for the credit enhancement provider. The bank holds and maintains the collateral that is pledged to the trustee to secure the obligations of the credit enhancer under the credit facility.
Community Facilities District (CFD).
Otherwise called Mello-Roos Bonds. The name refers to the taxing District that is set up to authorize the issuance of bonds, that will benefit from the financing, and from which special taxes will be collected for the bonds' repayment.
Convertible Bonds.
Securities that may be exchanged for common stock of the same company at a set conversion price stated in the bond indenture.
Coupon.
A bearer bond with coupons attached. The interest on the bond is collected by detaching and presenting the coupons as they become due.
Current Yield.
Annual interest (or dividends) divided by the current market price of a bond (or stock).
CUSIP.
Acronym for Committee on Uniform Securities Identification Procedures. A uniform numbering system widely used to identify securities and their issuers. It includes corporate, municipal, state, federal, and some foreign issues. The CUSIP number appears on the certificates and in documents relating to securities processing.
Custodian.
A bank that safekeeps securities for its customers and collects dividends and interest. It also buys, sells, receives and delivers securities if so instructed by the customer.
A bank, designated by two or more parties to hold securities, funds, or documents that are to be delivered upon compliance with the conditions contained in the escrow agreement, usually within a specified period of time.
Exchange Agent.
A bank designated by an issuer of securities to exchange the bonds of an issue for other bonds of the same issue to exchange the bonds or stock for other securities of the same issuer or of a different company as a result of a merger or acquisition.
A bank or trust company, authorized to enter into a fiscal agency agreement with an issuer of bonds or notes (usually a government entity). The agreement provides for control of the issue and its servicing, but the fiscal agent does not have fiduciary responsibilities.
A legal document describing in specific detail the terms and conditions of a bond offering, the rights of the bondholder, and the obligations of the issuer to the bondholder; such document is alternatively referred to as a bond resolution.
Bonds issued by any of the 50 states, the territories and their subdivisions, counties, cities, towns, villages and school districts, agencies, such as authorities and special districts created by the states, and certain federally sponsored agencies such as local housing authorities. Historically, the interest paid on theses bonds has been exempt from federal income taxes and is generally exempt from state and local taxes in the state of issuance.
The face value or principal amount of a bond. It has no relation to the market value.
Paying Agent.
An institution, normally a bank, authorized by the issuer to pay the principal of (premium if any) or interest on any debt securities on behalf of the issuer.
Prospectus.
An official document that must be given to buyers of new SEC-registered issues.
Principal.
The face value of a bond, exclusive of interest.
Put Bond.
A bond that can be redeemed on a date or dates prior to the stated maturity date by the bondholder. Also known as an option tender bond.
A non-negotiable instrument in the name of the holder either registered as to principal or as to principal and interest.
Registrar.
A bank, normally the trustee or fiscal agent that maintains the records or bearer certificates in fully registered form. The registrar processes the registrations of the transfers and exchanges the securities.
Revenue Bond.
A municipal bond whose debt service is payable solely from the revenues derived from operating the facilities acquired or constructed with the proceeds of the bonds.
Rule 144A.
A regulation of the SEC, that exempts from registration the resale of privately placed securities to qualified institutional investors, thus creating a viable secondary market for such securities.
Bonds issued in conjunction with a redevelopment project. The taxes pledged to their repayment come from the increase of assessed value over and above a pre-established base. The redevelopment creates this added value, known as the tax increment.
Tax-exempt Bond.
Bonds exempt from federal income, state income, or state tax and local personal property taxes. This tax exemption results from the theory of reciprocal immunity: States do not tax instruments of the federal government and the federal government does not tax interest of securities of state and local governments.
Tender Agent.
A bank that usually accepts bonds that are tendered under the provisions allowing the bondholders to require the bond issuer to repurchase the bonds at certain times or intervals.
Trustee.
A bank designated as the custodian of funds and official representative of bondholders. Trustees are appointed to ensure compliance with the trust indenture and represents bondholders to enforce their contract with the issuer.
A deep discount municipal bond on which no current interest is paid. Instead, at bond maturity, the investor receives compounded interest at a specified rate. The difference between the discount price at purchase and the accreted value at maturity is not taxed as a capital gain but is considered tax-exempt interest.
