CPFO Debt Exam Questions with Complete Solutions Rated 100%

CPFO Debt Exam Questions with Complete Solutions Rated 100% Tax-increment Financing Bonds - Answers Issued to promote revitalization of a given geographic area - Debt is paid from the increase in property taxes generated from increased assessed values - Can be risky Bond Covenants - Answers Promises a government makes about paying for the bond. Usually includes - Rate covenants - Additional bond test - Operation and maintenance requirements May be required to have a debt service reserve fund and/or bond insurance Limited Tax Government Obligation Bond - Answers Issued when debt limits become a factor. Government pledges property tax up to a certain amount or secures the bond with available general fund revenues Liquidity Facility - Answers short-term financing option such as a letter of credit Capital Improvement Plan - Answers A plan, adopted by the board, that identifies projects to be funded, funding sources, and project expenditures over time. Private-Activity Bonds - Answers Bonds for which: 1. Greater than 10% of the proceeds will be used by a private entity or will finance facilities to be used by private entity and 2. Payment of the principle of or interest on greater than 10% of the balance will be paid from or secured by private sources Exempt Facility Bonds - Answers A type of private activity bond that is tax-exempt 95% or greater of the net proceeds are used to finance a facility, and the facility must be available on a regular basis for general public use Qualified 501(c)(3) Bonds - Answers A type of tax exempt private - activity bond Issued for projects of 501 (c)(3) non-profit organizations such as educational or healthcare facilities General Obligation Bonds - Answers Bonds used to finance government improvements that benefit the community as a whole Secured by the full faith and credit and taxing authority of the issuer Revenue Bonds - Answers Bonds issued to finance facilities that have a definable user or revenue base Secured by a special source of funds: 1) operations of the project being financed or 2) a dedicated revenue stream Double-barreled bonds - Answers Bonds which are secured by both a dedicated revenue stream as well as a government taxing power Special Assessment/Special Improvement District Bonds - Answers Bonds issued to finance improvements that benefit a specific area Certificates of Participation (COPs) - Answers Lease-purchase agreements where the government leases an asset over a specified time with a predetermined cost sufficient to cover principal and interest; the lesser identifies investors to find the asset and the investors' interest is tax-exempt Variable-rate Instruments - Answers Bonds that are structured with maturities as long as an issuer's fixed rate (example, 20-30 years), but where interest is adjusted daily, weekly, or at some other interval Variable Demand Rate Obligations (VRDO) - Answers Debt instruments with long-term maturities and a coupon interest rate that is reset periodically. Includes a demand or "put" feature that permits the investor to require repayment of debt at the time of reset or at other intervals. Issuers usually also purchase a liquidity facility to offset risk of the put feature being used. Auction Rate Securities - Answers Variable rate securities where the interest-rate is reset periodically using a Dutch auction process. Dutch auction - Answers May be used with variable rate securities, investors submit the interest-rate they require to continue to hold or to purchase securities to an auction agent. The lowest interest-rate necessary to sell the entire amount of securities becomes the interest rate at which all securities are sold. Derivatives - Answers Financial instruments whose own value is based upon (derived from) the value of other assets, indices of asset values, or interest rate levels. Fixed-to-floating Interest Rate Swap - Answers A derivative instrument the permits and issuer of fixed - rate debt to exchange interest payments for floating - rate payments over the term of the swap contract. Book-running Senior Managing Underwriter - Answers A firm in a bond syndicate that handles the affairs of the syndicate a.k.a. runs the books. Underwriter - Answers purchases securities from a government issued through either a competitive sale or a negotiated sale. and resell them to investors. Competitive Sale - Answers underwriters bid against each other to purchase securities from a government issuer. Negotiated Sale - Answers Underwriters know in advance they will purchase securities from a government issuer and discuss the structure/cost with potential investors. The underwriter assists in determining the sale time based on the market; and negotiates final purchase price with the issuer. Bond Counsel - Answers Certifies that the issuer has the legal authority to issue the bonds and that the bonds qualify for federal/state/local tax exemption (if applicable) Works with the issuer to ensure compliance with constitutional, statutory and procedural requirements and to assist in drafting bond documents, OS, ordinances, resolutions, tax certificates, etc. Escrow Verification Agent - Answers In a refunding transaction, verifies the cash flow sufficiency of the escrow securities to pay principal and interest on the refunded bonds until the call date. Official Statement (OS) - Answers A document containing complete information about the bonds being issued including: - purpose and structure - security being pledged