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85Â Â The following is a list of key terms used throughout this guidebook taken from NCHRP Synthesis 513: Evolving Debt Finance Practices for Surface Transportation (unless otherwise endnoted).1 Arbitrage With respect to the issuance of multiple securities, arbitrage usually refers to the dif- ference between the interest paid on tax-exempt bonds and the interest earned by investing the proceeds of the tax-exempt bonds in higher-yielding taxable securities. Federal income tax laws generally restrict the ability to earn arbitrage in connection with tax-exempt bonds or other federally tax-advantaged bonds. The 1986 Tax Reform Act states that these earnings must be rebated periodically to the federal government unless certain conditions are met. Credit Promise of future payment given in exchange for money, goods, or services today. Debt instrument A mechanism by which debt is issued (i.e., bonds, notes, and loans). Debt type Category of debt as defined by the security, such as general obligation, revenue- backed, or tax-backed. Specific examples of debt types include general obligation bonds, toll revenue bonds, grant anticipation revenue vehicles (GARVEEs), lease revenue bonds, and loans from federal credit programs. Debt service The sum of required principal and interest payments for a given period. Debt structure The rate structure and maturity structure for a debt type. Financial advisor Commonly refers to an individual or firm that advises the issuer or other obligated person on matters pertinent to the issue, such as structure, timing, marketing, fair- ness of pricing, terms and bond ratings. A financial advisor may also be employed to provide advice on subjects unrelated to a new issuance of municipal securities, such as advising on cash flow and investment matters in connection with outstanding municipal securities.2 Issuer The public entity borrowing money through the issuance of securities. Long-term Obligations that generally have a maturity of 5 to 10Â years. Municipal securities A general term referring to a bond, note, warrant, certificate of par- ticipation or other obligation issued by a state or local government or their agencies or authori- ties (such as state agencies, cities, towns, villages, counties or special districts or authorities). A prime feature of most municipal securities is that interest or other investment earnings on them are generally excluded from gross income of the bondholder for federal income tax purposes. Some municipal securities are subject to federal income tax, although the issuers or bondholders may receive other federal tax advantages for certain types of taxable municipal securities.3 Key Terms
86 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt Official statement A document generally required for each new issue that contains information about the nature of the security being offered and the revenue-pledged sources of payment behind the security. Pay-as-you-go-funding Describes government funding of capital outlays from current rev- enues or grants rather than by borrowing. Proceeds The money received by the issuer from the delivery of a bond issuance. The total proceeds include any variation of the price from par (discounts or premiums) and accrued interest. Revenue pledge A promise to use targeted sources of revenue for the payment of debt serviceâ a known source of security. A revenue pledge differs from a lien in that the targeted source is not readily available or identifiable (e.g., revenues from the project being financed by the bonds that has not yet been constructed). Security Generally, an instrument evidencing debt of or equity in a common enterprise in which an investment is made on the expectation of financial return. The term includes notes, stocks, bonds, debentures or other forms of negotiable and non-negotiable equities or evi- dences of indebtedness or ownership.4 Short-term Obligations that generally have a maturity of less than 1Â year. Endnotes 1. Henkin, T. and K. DeMoors. 2017. NCHRP Synthesis 513: Evolving Debt Finance Practices for Surface Trans- portation. Transportation Research Board, Washington, DC. https://doi.org/10.17226/24801 2. Municipal Securities Rulemaking Board. âGlossary of Municipal Securities Terms.â http://www.msrb.org/ glossary.aspx 3. Ibid. 4. Ibid.
