The most common type of refunding in which the proceeds, together with interest earnings thereon, are structured to produce sufficient funds to pay the principal, interest, and other expenses on the refunded bonds.
A transaction in which Refunding Bonds are issued and their proceeds are used to pay Principal, Interest or Redemption price on a prior Issue (the Refunded Bond), including Costs of Issuance, Accrued Interest, capitalized interest on the Refunding Bond, a reserve or replacement fund, or similar costs allocable to the Refunding Bond. A prior Issue is defined as an Issue of obligations all or a portion of the Principal, Interest or Redemption price on which is paid or provided for with proceeds of the Refunding Bond. A prior Issue may be issued before, at the same time as or after the Refunding Bond.
The 2017 Tax Act prohibited the issuance of Advance Refunding Bonds as Tax-Exempt Bonds issued to advance refund Tax-Exempt Bonds. Taxable Bonds may be issued to advance refund prior Tax-Exempt Bonds, and Tax-Exempt Bonds may be issued to advance refund outstanding Taxable Bonds in certain situations, under guidance provided by the IRS Office of Chief Counsel (Chief Counsel Advice Memorandum 201843009).
Types of Refundings
A refunding in which all refunded Bonds are redeemed within ninety days of the issuance of the refunding bonds.
A type of refunding transaction in which the refunding bonds are issued more than 90 days before the redemption or final maturity, whichever is earlier, of the refunded bonds.
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Termination of the rights and interests of the bondholders and release of liens on the security upon final payment of debt service or deposit of guaranteed payment in an irrevocable escrow fund.
Bonds issued in a refunding to pay off the refunded bonds.
Outstanding bonds which are paid off with all or a portion of the proceeds of refunding bonds.
Trust account established in the escrow deposit agreement that holds cash, investments, usually obligations of the federal government or, sometimes, federal agencies, or both, all of which are pledged to the payment of the debt service of the refunded bonds.